Last week, the United States Senate approved a coronavirus relief bill. And on Friday, March 27th, President Donald Trump signed the bill into law, now known as the CARES Act (Coronavirus Aid, Relief, and Economic Security Act). The $2 trillion coronavirus stimulus package 2020 is the largest bailout in modern American history and was approved shortly after it was reported that, due to the spread of COVID-19 in the nation, the US had officially become the hardest-hit country in the world. As of this writing, there are now more than 100,000 confirmed cases of COVID-19 in the US. Due to the pandemic, many cities are on lockdown and businesses classified as non-essential have shut down their operations. And with 1 out of 4 Americans in quarantine, the US economy is struggling. Unemployment claims reached a record-high 3 million last week. Will the 2020 coronavirus stimulus package be enough to prevent a full-blown financial crisis?
Many have been vocal on either their support or opposition for the coronavirus relief package. One point of contention is the major tax break for real estate investors which was included in the bill. Let’s take a look at this tax break as well as a few other key provisions of the CARES Act and how they will affect different players in the US real estate market– from landlords/rental property owners to agents to renters.
Coronavirus Stimulus Package Introduces a $170 Billion Tax Break
One provision of the coronavirus stimulus package that caught the eye of critics immediately was a lucrative change in tax policy geared towards real estate investors.
In 2017, President Trump introduced the Tax Cuts and Jobs Act (TCJA). Known as one of the biggest changes in tax policy in recent history, the TCJA introduced a cap on property tax deductions, specifically for real estate depreciation. One of the many known tax benefits of real estate investing is the fact that real estate investors can write off depreciation. Real estate depreciation is the loss of value of an investment property over time. This decline in property values is considered an “on-paper” loss. However, for real estate investors who take advantage of this property tax deduction, it can amount to a lot in savings over the years. The cap originally introduced in the TCJA 2017 was for a maximum of $500,000 of depreciation for 1 year for a married couple. ($500,000 was determined by the IRS as the gradual cost of maintaining an investment property.) Any unclaimed losses could be rolled over to future years. What this meant was that real estate investors could protect up to $500,000 in capital gains from investment properties. Essentially, real estate depreciation can significantly reduce the taxable income from rental property profits.
The 2020 coronavirus stimulus package will lift this tax deduction cap for the next three years. In addition, there is another provision in the fiscal stimulus package that removed limitations on what losses could be carried over from previous years. Under the new tax policy, taxpayers with any unclaimed losses from 2018, 2019, and 2020 now qualify for amended returns.
Overall, this tax break for real estate investors is the second-largest in the coronavirus stimulus package. An initial financial analysis revealed that this provision in the relief package would cost $170 billion over 10 years. It will serve around 1% of taxpayers, according to data from the IRS. As such, the change in tax policy has received some backlash with critics claiming those closest to President Donald Trump and only the richest real estate investors will benefit from it.
How Real Estate Agents and Brokers Benefit From the Stimulus Package
Real estate agents find themselves in a frozen housing market as fear over the coronavirus spreads among homebuyers, sellers, and investors. With real estate transactions being labeled as “non-essential” amid shutdowns and “stay at home” orders in many locations despite NAR’s efforts to change that, the future of real estate agents is uncertain along with millions of other Americans.
However, the $2 trillion stimulus package will offer some support and relief to real estate agents and brokers during the coronavirus pandemic. NAR listed the provisions that may benefit real estate agents. Here is a brief summary:
Small Business Administration Loan Program
The coronavirus stimulus package includes $350 billion for the Small Business Administration loan program. This will allow real estate brokerages with 500 employees or less to qualify for up to $10 million (depending on the company’s average monthly payroll expenses for the year before the loan application). The money can be used to cover payroll costs, mortgage interest, rents, and utilities.
Expansion of Those Who Qualify for Unemployment Insurance
Those who are considered self-employed as well as independent contractors now qualify for unemployment insurance thanks to the coronavirus stimulus package. This means the insurance may provide benefits for real estate agents for up to 39 weeks. Typically, real estate agents and other workers in this classification do not qualify for state unemployment benefit programs.
Employee Retention Tax Credit
For companies that work to maintain their employees during the COVID-19 pandemic, the CARES Act will provide an employee retention tax credit. The total relief fund in the package is $50 billion.
Coronavirus Relief Checks
Depending on their income, real estate agents may also qualify for the relief checks promised by the coronavirus stimulus package: $1,200 for single taxpayers and $2,400 for married couples, plus $500 for each child.
Note that many of these provisions are subject to specific limitations. If you’re a real estate agent looking to learn more about what the coronavirus stimulus package means for you, check out NAR’s FAQs.
What About Landlords and Their Tenants?
The relief checks mentioned above will be sent out to all American citizens who qualify. And unemployed renters will also get some support as the coronavirus stimulus package includes a provision that will provide an additional $600 a week for 4 months. The issue with making rent and paying landlords by April 1st, however, is two-fold. The stimulus package is coming a little late. Relief checks probably won’t reach anyone for another two or three weeks- past when rent is due. In addition to the timing, in many areas, the checks may not be enough to cover rent costs and life necessities. Areas where the coronavirus has hit the hardest like the NYC housing market and the Bay Area housing market, for example, are known for high rental rates and the relief checks may not be enough to cover them.
However, other measures may offer some support to landlords, rental property owners, and tenants during this time. Multi-family real estate investors with federally backed loans will get a break on their loans. Freddie Mac and Fannie Mae announced that landlords who refrain from evicting tenants who are unable to pay rent due to the pandemic will be extended this form of relief. Other areas are implementing eviction and mortgage delays while officials are calling for rent delays to offer additional protection to renters. If you own a rental property or live in one, keep your eye on the developing situation in your local housing market.
Other Key Provisions in the Coronavirus Stimulus Package
Other provisions outlined in the 2020 coronavirus stimulus package include:
- $100 billion for the hospitality industry
- $58 billion for airlines
- $150 billion for state and local governments
- Property improvement tax deductions for commercial real estate owners (restaurants, hotels, retail)
- $25 billion for food assistance
- $16 billion for SNAP
- $9 billion for children nutrition
- $24 billion for the farm economy
- $30 billion for emergency education funding for colleges, universities, and schools
You can read the coronavirus stimulus package bill here.
Final Words on the CARES Act 2020
This coronavirus stimulus package is sure to help the situation to an extent. However, experts in the real estate industry and other industries believe that another relief package will be on its way in the coming weeks and would be a necessary follow up to the CARES Act to support the US economy during this time.
Learn more about developing coronavirus real estate trends.