The CARES Act Provides New Refund Opportunities

The Tax Cuts and Jobs Act (TCJA) of 2017 limited the amount of business losses that a non-corporate taxpayer can utilize to offset their non-business income.

You may remember that, prior to the TCJA, a taxpayer, including a real estate professional, was able to offset all their income with losses from their flow-through entities such as partnerships, LLCs taxed as partnerships, and S-Corporations, subject to basis limitations and the passive activity loss rules. This proved to be extremely beneficial for many real estate professionals whose real estate entities generated losses due to depreciation, and many of these individuals didn’t pay tax for years. The TCJA put an end to that by limiting the amount of net business losses a taxpayer can take to offset their other income to $500,000 for married couples filing jointly, and $250,000 for single taxpayers or married couples filing separately. Many real estate professionals that had significant income from other investments found that they went from paying no tax to paying a substantial tax.

The good news is that the CARES Act suspends this limitation for years beginning after December 31, 2017 and before January 1, 2021.

This could provide an opportunity for taxpayers to file amended returns or net operating loss carryback claims for 2018 as well as 2019, if they already filed tax returns for either of those years. If they have not filed for 2019, the change in rules may result in a taxpayer having a tax overpayment.

Please reach out to your Anchin Relationship Partner or a member of our Real Estate Group so that we can personally address your questions and concerns.

Disclaimer: Please note this is based on the information that is currently available and is subject to change.