On Friday, March 27th, the CARES Act was signed into law by President Donald Trump. The $2 trillion coronavirus stimulus package is meant to provide financial assistance to struggling US industries and individuals during the pandemic. As life has essentially come to a halt, the US economy has been suffering as a result. With the stock market crash, talk of a housing market crash, and unemployment claims reaching an all-time high of 3 million, the CARES Act 2020 is intended to minimize the damage COVID-19 has reaped on the economy thus far.
We have already covered the $170 billion tax break for wealthy real estate investors included in the coronavirus stimulus package. But what other provisions could have an effect on the US real estate market in 2020?
The Coronavirus Aid, Relief, and Economic Security Act: 8 Key Elements
Here, we will provide a CARES Act summary as it pertains to real estate investors, homeowners, real estate agents and brokers as well as multifamily investment property owners in the US housing market.
To read the entire CARES Act 2020 document, click here.
Financial Assistance for American Households
One significant provision in the CARES Act came in the form of stimulus checks. The coronavirus stimulus package designates $300 billion for one-time payments to taxpayers. Individuals who earn an adjusted gross income of $75,000 or less are eligible to receive a direct payment of up to $1,200. Married couples in the same income range can expect to receive up to $2,400 plus an additional $500 for every child.
Those with an adjusted gross income of more than $75,000 will have their payments reduced by $5 for every additional $100. Households and individuals who earn more than $99,000 will not be eligible for the checks under the CARES Act.
Depending on their income, those in the real estate industry may benefit from this financial assistance. And although they will not come in time for rent payments on April 1st, the stimulus checks may help financially struggling tenants pay for housing in the near future. This, of course, depends on the real estate market as in some areas like the NYC housing market and the Bay Area housing market, rental rates are very high. Thus, the one-time stimulus checks may not be enough to cover rent and other necessities for those in a bad financial state during the coronavirus pandemic.
Additional Unemployment Benefits
For anyone in the housing market who has found themselves unemployed due to the coronavirus outbreak, the CARES Act will provide additional financial assistance. Individuals who qualify for unemployment benefits will be given $600 every week. This is in addition to what you would typically receive from your state’s unemployment benefits program. So if you’re a tenant worried about paying rent or a homeowner worried about covering mortgage payments due to a loss of income, you can expect 4 months of these payments if you file for unemployment.
Another key provision in the CARES Act regarding unemployment benefits is that the definition of those who qualify for unemployment has been expanded to include:
- Self-employed individuals
- Independent contractors
For these individuals, assistance will be provided for a maximum of 39 weeks. The amount of money one receives will depend on the state unemployment compensation law and will include the additional $600 per week for 4 months.
As it pertains to the US housing market, this could mean that real estate agents, as well as Airbnb hosts, may qualify to receive “Pandemic Unemployment Assistance”. In the midst of the coronavirus pandemic, many real estate agents and Airbnb hosts have found themselves without an income.
Although real estate was just recently deemed as an essential business in many locations including the California real estate market, many buyers and sellers are holding off on making any moves until fears of COVID-19 subside. This means a loss of work and commissions for many real estate agents across the US.
As for Airbnb hosts, activity in the short-term rental market has also come to a screeching stop. Travel bans and the cancellation of major events and conventions to keep the coronavirus from spreading have left Airbnb rental properties vacant. Mashvisor’s data shows that Airbnb hosts in the Las Vegas real estate market, the Seattle real estate market, and the NYC real estate market are suffering major drops in Airbnb occupancy rates. In the face of mass booking cancellations and Airbnb’s new coronavirus refund policy, many hosts are unable to cover rental property costs and mortgage payments. If you’re an Airbnb host staring down an empty calendar and a vacant rental property, you may benefit from this bailout as well as the new support Airbnb is offering to its hosts.
Small Business Loans
If your real estate business classifies as a small business with 500 employees or less, you may be eligible for low interest rate small business loans under the CARES Act if your business has fallen on hard times due to the coronavirus. The $2 trillion stimulus package of 2020 allocates $350 billion for these loans. There is an upper limit of $10 million and how much a business receives will depend on the average monthly payroll expenses for the year before. The money from these small business loans can be used for mortgage interest, rent, payroll, and utility payments. The coronavirus relief package also states that part of the loan may be eligible for forgiveness if used for the previously listed purposes.
Additional support to small businesses will come in the form of an expansion of who is eligible for Economic Injury Disaster Loans through December 31, 2020. At least one requirement that will no longer apply for these loans under the CARES Act is that the applicant must have been in business for a year.
If you’re a homeowner who financed your property using a federally backed loan, then you can request a mortgage forbearance for up to 180 days from your mortgage provider. This would mean that you can avoid foreclosure if you’re unable to make your mortgage payments due to the coronavirus. During this time, no fees, penalties, or interest beyond the amount of the contractual payments will accumulate for you. You can also request an additional 180 days if needed.
If you’re a multifamily real estate investor who used a federally backed loan for investment property financing, then you can also request mortgage forbearance to avoid foreclosure during the pandemic. However, there are a few requirements for multifamily rental property owners including:
- You must be current on mortgage payments as of February 1st, 2020.
- If your request for foreclosure forbearance has been approved, you cannot evict tenants from your multifamily rentals for failing to pay rent nor can you charge them late fees during this crisis.
Although this mortgage forbearance will not apply to all real estate investors or homeowners, it will still provide some relief for those who qualify.
Whether you apply for the mortgage forbearance or not, if you own a rental property, it may be subject to eviction moratoriums under the stimulus package 2020. The CARES Act calls for a 120-day eviction moratorium for tenants in rental properties that are either classified as government housing or have been financed with a federally backed loan. Landlords of these rental properties may not begin eviction proceedings or charge late rent fees. Although clarification is needed, it’s possible eviction proceedings that were initiated before the coronavirus pandemic and the introduction of the CARES Act may also be affected by this provision.
Retirement Account Withdrawals
The 2020 coronavirus stimulus package also took into consideration those who may need to dip into their retirement savings due to financial hardship. Under the CARES Act, the 10% penalty on withdrawals up to $100,000 will be waived. This will apply to qualified retirement accounts and the money that you withdraw will have to be used for “COVID-19 related purposes”. So if you’re a real estate investor who has been putting aside rental income for retirement, you may be able to use some of it to cover any costs arising from the pandemic.
There are a few different tax benefits that may apply to those in the real estate industry whether you own residential or commercial real estate or are self-employed as a real estate agent. Here is a brief overview of some of the tax deductions and benefits introduced in the CARES Act:
- Those who are self-employed may defer payment on half of their self-employment taxes until after 2021.
- Unused losses from the previous three years may qualify for amended returns.
- Certain commercial real estate investors will now be able to claim depreciation on qualified property improvements.
- The cap on tax deductions of up to $500,000 on real estate investments has been lifted for the next three years.
- Employers who keep their employees on payroll during the COVID-19 pandemic may be eligible for an Employee Retention Tax Credit.
- Employers can delay payment of payroll taxes.
- Taxpayers who have incurred Net Operating Losses will be able to receive benefits for these losses more quickly under the new legislation.
To fully comprehend which tax benefits apply to you and your real estate business, speak with a tax professional.
Affordable and Public Housing
The CARES Act also includes funding for the Department of Housing and Urban Development (HUD). The money is intended to provide financial support for housing programs that help the homeless and other citizens in need. Here is a quick rundown of where some of the funding will go:
- $5 billion to the Community Development Block Grants
- $4 billion to McKinney-Vento Homeless Emergency Solutions Grants
- $1.25 billion in Section 8 voucher assistance for those who suffer a loss of income due to COVID-19
- $1 billion to the Project-Based Rental Assistance Program
- $50 million to the Section 202 Supportive Housing for the Elderly Program
Related: Investing in HUD Homes: The Basics
Final Words on the CARES Act 2020
Although it is being hailed as the largest economic bailout in the history of the United States, many financial experts have stated that the CARES Act will not be enough to completely prevent a financial crisis. As the coronavirus pandemic carries on and more cities are forced into quarantine, it is likely that another measure will have to be taken soon by the US government to provide financial stimulus to the economy in 2020.
Learn about what the Federal Reserve has done to help the US economy and the real estate market during this crisis: What the 0% Interest Rate Means for Mortgage Rates. For more resources, check out the page we set up for real estate investors: Coronavirus Real Estate Trends.