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ETS CARES ACT RESOURCE CENTER

In the past weeks, we have had to make sweeping changes in our business and personal lives as we adjust to the uncertainties brought about by the coronavirus (COVID-19). Every member of the Engineered Tax Services team extends our best wishes for the safety of you, your employees and your families.

To address the economic hardships brought on by the pandemic, Congress has enacted the largest emergency aid package in U.S. history. Known as the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), this legislation provides much-needed aid to individuals and businesses hurt by the struggling economy.

As a national specialty tax services business, ETS closely monitors federal and state legislation and guidance. We organized the CARES Act Resource Center to provide you with timely information that can benefit your business and clients now and in the months ahead. We’ll highlight tax-advantageous measures contained in the CARES Act, such as improvements to cost segregation, and tax changes that will benefit R&D tax credits and the treatment of business losses.

Please use the links below to quickly navigate to essential information. We encourage you to contact us directly at any time by calling (800) 236-6519.

Quick Navigation

 

CARES Act Tax Rule Changes and Strategies

Cost Segregation

Pre CARES Act Rules

Post CARES Act Rules

Comments & Strategy

Bonus Depreciation

100% Bonus if in service generally after 9/2017

Same 100% Bonus + New 5 year carryback option

Given NOLs can be carried back, review all cost segregation, 179 and 179D energy tax deduction opportunities to generate a NOL and possible refunds

Net Operating Losses (NOLS)

NOLs limited to 80% of current year taxable income, cannot be carried back

NOLs are limited to 80% of current year taxable income and may not be carried back to prior tax years (i.e., to generate refunds). CARES Act now permits a loss from taxable years 2018, 2019, and 2020 to be carried back 5 years prior to generate refunds and remove taxable income limitation allowing NOLs to fully offset income in current taxable years. Additionally, the Act removes excess business loss limitation applicable to pass-through business owners and sole proprietors so they can also benefit from the modified NOL carryback rules.

Taxpayers can file amended retund to generate refunds where appropriate, or alo have option to file a Form 1145 to get these for 2019 more quickly For losses in 2020, they should be prepared to file the form in as soon as they can in Jan. of 2021.

Qualified Improvement Property (QIP)

Not eligible for accelerated depreciation or Bonus

A drafting error in the Tax Cuts & Jobs Act (TCJA) required using a 39-year depreciable life for qualified improvement property (certain improvements to a building’s interior). The CARES Act corrects this error and makes it 15-year depreciable property allowing possible immediate expensing of these improvements as they would now also be eligible for 100% bonus depreciation

This is retroactive, so taxpayers and CPAs need to determine how best option to go back and claim this. In some cases it may be amended returns, and in others where there was a 3115 filed, it may be different.

Interest Deductions

30% maximum deduction

Increase in interest deductions permitted under IRC Section 163(j): The TCJA limited interest deductions to a portion of an entity’s adjusted taxable income (ATI). The Act would generally raise the limit on interest deductions from 30 percent of ATI to 50 percent for taxable years beginning in 2019 and 2020, allowing taxpayers more leeway in deducting interest

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Excess Business Loss Carryback

$500,000 cap

The CARES Act resolves the excess business loss limitation applicable to pass-through business owners and sole proprietors for taxable years beginning in 2018, 2019, and 2020. This allows businesses to benefit from the modified NOL carryback rules.

This too may require amended returns.

Energy Tax Incentives

Pre CARES Act Rules

Post CARES Act Rules

Comments & Strategy

179D Energy Tax Deductions

$1.80 per sf for all commercial buildings and residential 4 stories or more, both new construction or improvements of new lighting, HVAC, roof, windows retroactive 006-2020

Same + New 5yr carry back option

Given tax deductions (NOLs) can now be carried back 5 years, review all 179D opportunities to generate immediate tax savings and possible retroactive refunds

45L Energy Tax Credits

$2,000 tax credit per unit for residential and multifamily new construction or substantial improvements retroactive 2016- 2020

Same + New 5yr carry back option

Given tax credits can generally be carried back 1 year and forward 20, review all 45L opportunities to generate immediate tax savings and possible retroactive refunds

R&D Tax Credits

Pre CARES Act Rules

Post CARES Act Rules

Comments & Strategy

Powerful Federal & State Tax Credits

Yes

Yes

Tax Credit generally based on employee wages, external contractors and materials and supplies for research and development activities on innovative products, processes, software, techniques, and knowhow. Can capture benefits generally 3-4 years back retroactively and generate cash refunds now against taxes paid or to be paid going forward.

Tracking State Legislative Responses to COVID-19

Every state is making daily tax law changes in response to the COVID-19 virus and changes to the Federal tax law changes through the various stimulus programs. Here are links that provide the best of (up-to-date?) to date changes by each state.

SBA Economic Injury Disaster Loan Assistance

Small business owners in all U.S. states, Washington D.C., and territories, are currently eligible to apply for a long-term, low-interest loan due to Coronavirus (COVID-19). The SBA’s Economic Injury Disaster Loan program provides small businesses with working capital loans of up to $2 million that can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing. If you are applying for disaster assistance for another declaration, then please see the home owner's and renter's form here.

The SBA Loan program termed the “Paycheck Protection Loans” are projected to have the following benefits:

  1. Small businesses can apply for low-interest loans that cover up to two-and-a-half months of payroll expenses, including salaries, sick leave, and other compensation benefits. The maximum loan amount is $10 million. The loans can cover payroll, rent, utilities, or existing debt obligations. Interest rates on these loans can’t exceed 4%. The key point here is that the loans are intended for business owners who agree to keep their payroll steady, meaning workers across the country could continue getting a regular paycheck. A business will have to make a “good faith certification” that the money will go toward retaining workers, maintaining payroll, or paying necessary expenses like rent.

  2. If an employer continues to pay workers through June, the amount of the loans that went toward eligible costs would be forgiven. That means they’d essentially be grants to small businesses. Eligible costs for forgiveness include payroll costs for employees earning up to $100,000 annually, rent or mortgage payments, and utilities. The amount forgiven would be scaled back if an employer lays off workers or reduces their pay.
 
 
 

New Federal COVID-19 Stimulus Tax Law Resource Links

  • IR-2020-59, IRS unveils new People First Initiative; COVID-19 effort temporarily adjusts, suspends key compliance program
  • IR-2020-58, Tax Day now July 15: Treasury, IRS extend filing deadline and federal tax payments regardless of amount
  • IR-2020-57, Treasury, IRS and Labor announce plan to implement Coronavirus-related paid leave for workers and tax credits for small and midsize businesses to swiftly recover the cost of providing Coronavirus-related leave Treasury News Release: Treasury and IRS Issue Guidance on Deferring Tax Payments Due to COVID-19 Outbreak
  • IR-2020-54, IRS: High-deductible health plans can cover coronavirus costs

IRS Guidance

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Engineered Tax Services

Where Engineering & Accounting Come Together