Archives for March 2020

The Small Business Administration is expected to lean on the private sector to help process the influx of loans offered through the CARES Act, which is intended to help millions of small and midsize businesses through SBA 7(a) loans.

Distressed borrowers who’ve shuttered their businesses because of the coronavirus pandemic are flocking to take advantage of the stimulus package the Small Business Administration has designed known as the CARES Act – Coronavirus Aid, Relief and Economic Stimulus Act, meant to help millions of small and midsize businesses through SBA 7(a) loans.
The SBA is expected to look to the private sector for help in processing these loans because it will not have the capacity to service the high demand, according to Chris Hurn, CEO and founder of Fountainhead, one of only 14 nonbank lenders licensed to make SBA 7(a) loans.
Fountainhead is able to approve loans within a few hours, whereas the SBA typically takes about three to four weeks just for the initial approval, according to Hurn. “The SBA does not have the infrastructure to process the number of loans they are promising to distribute. In order to get the economy back on its feet, they will have to lean into the private sector, specifically to non-bank direct lenders,” Hurn said.
The CARES Act will enact the Paycheck Protection Program, allowing the government to set aside $350 billion to help businesses that are continuing to pay their employees and help them navigate the current economic landscape.
Small businesses are very important to landlords and property owners because if small businesses can’t pay rent, it activates a ripple effect in the industry. The landlords and property owners need cash flow and if their tenants cannot pay rent, they will no longer have a stream of income. “This cycle becomes more vicious as time goes on and as both the small business owner and landlord are not being paid,” Hurn said.” Fountainhead has received over 2,500 loan inquiries from small businesses across the country over the past two weeks. “People are already seeking help,” he added.
According to Hurn, The most helpful thing landlords and banks can do right now is defer payments. Landlords can defer payments on rent and banks can defer payments on any outstanding debt a small business may have. Banks, unlike landlords, can participate in the Paycheck Protection Program to help the small businesses they serve keep their employees and will be able to process the SBA 7(a) relief loans as well. Banks, however, will not be able to process loans quickly, which is why small business owners should explore the private sector, Hurn said.
Source: “SBA Leans On Private Sector for Influx of Distressed Borrowers“

The $2 trillion economic stimulus package passed last week can reduce current tax liabilities and provide cash to taxpayers with net operating loss carrybacks.

Last week Congress passed and President Trump signed the Coronavirus Aid, Relief, and Economic Security, or Cares, Act, releasing a $2 trillion stimulus on the US economy that is currently under siege from the coronavirus.
The main provisions of the Cares Act included $454 billion for TALF and other Federal Reserve lending facilities, 90 days of forbearance for multifamily owners with a federally-backed mortgage, temporary relief for banks from the CECL implementation and Troubled Debt Restructuring rules and $350 billion to small businesses.
But those measures are only the headlines. There are numerous other clauses in the bill designed to help businesses and Kenneth Weissenberg, corporate tax partner with EisnerAmper, has identified several that could benefit the real estate industry. Namely, “the Cares Act can reduce current tax liabilities and provide cash to taxpayers with net operating loss carrybacks,” he tells GlobeSt.com.
These include, according to Weissenberg:

• The tax treatment of Qualified Improvement Property which includes Qualified Leasehold, restaurant and leasehold Improvement property was changed to qualify as 15-year property as a technical correction to the Tax Cut and Jobs Act of 2017(TCJA).
• The classification as 15-year property (as opposed to 39-year property) makes these asset subject to 100% Bonus Depreciation deductions for many taxpayers.
• Interest expense limitations for business interest have been modified for 2018 , 2019 and 2020 as well as increasing the amount allowed as an expense from 30% to 50% of adjusted taxable income. In addition, for non-corporate taxpayers, the $500,000 limit on business losses against other income has been waived.
• As a result of these changes, many taxpayers will have net operating losses in 2018, 2019 and 2020. The TCJA eliminated the carryback period for net operating losses and limited the amount of income NOL’s created in 2018 and thereafter could offset to 80% of adjusted gross income.
• The Cares Act eliminated the 80% limitation for tax year 2018, 2019 and 2020 and created a 5 year carryback for these NOL. “So not only did the Act increase the amount of losses a taxpayer could generate, it greatly enhanced the ability to use those losses immediately to offset other taxable income in both the current year and in the past,” Weissenberg says. “This frees up money for payroll and rent and other expenses. For my clients it represents significant relief from a crushing blow of the pandemic and not having customers for goods and services.”

Source: “The Cares Act Can Also Reduce Tax Liability For Real Estate Firms“

Provisions for REALTORS® and Their Consumers
Congress has voted on a historic COVID-19 relief that includes many benefits for Realtors® that were secured by NAR. Here is an outline of the major provisions. Download

Affordable Housing Provides For:

• $1.25b for Section 8 voucher rental assistance for seniors, the disabled, and low-income working families, who will experience loss of income from the coronavirus
• $5b for CDBG to help communities and states address COVID-19
• $1 billion for project-based rental assistance to make up for reduced tenant payments as a result of coronavirus
• $50m for Section 202 Housing for the Elderly to maintain housing stability and services for low-income seniors
• $15 million for Section 811 Housing for Persons with Disabilities to make up for reduced tenant payments as a result of coronavirus
• Foreclosure moratorium on all federally-backed mortgage loans (Fannie Mae, Freddie Mac, HUD, VA and USDA) for 60 days (beginning March 18, 2020). Borrowers experiencing a Covid-19 hardship may request forbearance for up to 180 days, with an option for an additional 180 days, with no penalties of fees.
• Owners of multifamily properties who were current on their mortgage payments as of February 1, 2020, and have federally insured, assisted, or supplemented loan (Fannie Mae, Freddie Mac, FHA or any loans backed or assisted by any branch of the federal government, including LIHTC) may request forbearance for 30 days due to financial hardship, with extensions of up to a total of 90 days. Borrowers receiving the forbearance may not evict or charge late fees to tenants for the duration of the forbearance period.
• Moratorium on eviction filings, or fees or penalties for tenants for nonpayment of rent for 120 days on properties insured, guaranteed, supplemented, protected, or assisted in any way by HUD, Fannie Mae, Freddie Mac, the rural housing voucher program, covered by the Violence Against Women Act of 1994.

Banks & Credit Reporting (Financial Institutions)

Optional Temporary Relief From Current Expected Credit Losses (section 4014)

• Insured depository institution, bank holding company, or affiliate.
• Shall not be required to comply with CECL
• Until the earlier of the date of end of public health emergency, or January 31, 2020.

Mortgage Forbearance

• Borrowers of government-backed mortgages can request up to 360-day payment forbearance.
• Proof of hardship isn’t necessary.
• No additional fees, interest, or penalties can be assessed for the forbearance.
• Except for abandoned or vacant property, no foreclosure actions for 60 days from 3/18/2020.
• The stimulus bill may allow the Treasury/FHFA/Fed to create a potential liquidity facility for servicers, but the mechanics of how this access would work must ultimately be decided by the Administration.

Credit Reporting

• These provisions apply from January 30, 2020 to 120 days after enactment or end of national emergency.
• If furnishers provide an accommodation and customer makes payment or if no payment required, then furnisher must report customer as current.
• If customer is delinquent before accommodation but brings account current, then furnisher must report customer as current.
• Furnishers may maintain status of written off accounts.

Other Banking Provisions

• Empowers OCC to waive limitations on amounts banks may lend to one entity.
• Sets capital requirements for community banks at 8 percent during the pandemic emergency and provides grace period to meet that requirement which gives them more cash to deal with stress.
• Loan modifications resulting from the pandemic won’t qualify as troubled debt restructures from 3/1/2020 to 12/31/2020 or 60 days after the end of the pandemic.
• Expands NCUA power to grant credit unions access to its Central Liquidity Facility.

Broadband

Reconnect Pilot Program – $100 MILLION

• The bill would provide $100 million for a grant program, overseen by the Department of Agriculture, to would fund construction and upgrade costs of broadband networks in rural areas.

Distance Learning, Telemedicine and Broadband Program – $25 Million

• The bill provides additional funding for the DLT grant program, which supports rural communities’ access to telecommunications-enabled information, audio, and video equipment, as well as related advanced technologies for students, teachers, and medical professionals.

What Does This Mean for REALTORS®?

Broadband forms the infrastructure for the American economy’s digital future. Policies that expand broadband will promote economic growth and increase opportunities for home sales. Studies have concluded that in communities where there is access to high speed internet, property values are 6 percent higher.
Federal Transit Administration

Transit Infrastructure Grants

• Provides $20,000,000,000 for ‘‘Transit Infrastructure Grants’’.
• Of the funds provided under this Act, (1) $4,000,000,000 shall be available for formula grants for rural areas and (2) $16,000,000,000 shall be available for urbanized area formula grants.

Small Business Administration Provisions

Economic Injury Disaster Loans (EIDL) and 7(a) Payroll Protection Plan

• The CARES Act dramatically increased the role of the Small Business Administration (SBA) in efforts to assist U.S. businesses impacted by the COVID-19 crisis. The two main vehicles for these relief efforts are the SBA 7(b)(2) loans – Economic Injury Disaster Loans – and the SBA 7(a) loan program. Both loans are available to businesses with 500 or fewer employees that have been negatively impacted by the crisis.

Emergency Economic Injury Disaster Loan (EIDL) Grants (Section 1110)

• Businesses with 500 employees or less, including sole proprietors, independent contractors, and cooperatives are eligible for Economic Injury Disaster Loans (EIDL) during the covered period of January 31st to December 31, 2020 in response to COVID-19.
• The Economic Injury Disaster Loans are available for up to $2 million dollars for businesses.
• During the covered period, SBA can determine loan eligibility based solely on the applicant’s credit score or use of an alternative appropriate method for determining an applicant’s ability to repay.
• The SBA must waive any personal guarantee on loan advances or loans under $200,000.
• Legislation provides $10 billion in funding to provide an emergency advance of up to $10,000, which is forgivable debt, to small businesses within 3 days of the business applying for the Economic Injury Disaster Loan (EIDL).
• Economic Injury Disaster Loans may be used for the following:
  • Paid sick leave to employees impacted by COVID-19
  • Payroll
  • Rent/Mortgage Payments
  • Debt obligations due to loss revenues
  • Increased costs for due to chain supply disruptions and materials.

SBA 7(a) Payroll Protection Program (Section. 1102 & 1106)

The CARES Act appropriates $349 billion to the SBA 7(a) loan program The SBA will receive increased funding to allow them to process applications more quickly, and can temporarily grant SBA lender status to lenders not currently participating in the program. Finally, it provides additional grant money for Small Business Development Centers around the country to provide aid and education to small businesses during the crisis and recovery.

• Businesses with 500 employees or less, including sole proprietors and independent contractors, are eligible for SBA 7(a) loans in response to COVID-19 covering expenses for the period of February 15, 2020 through June 30, 2020.
• The loan amount will be 250% of the average salary expenditures/month for 2019, up to $10 million. For businesses not open yet in that period, the SBA will look at earlier receipts from 2020.
• 7(a) loans can be used for:
  • Payroll, including for independent contractors and employees who work on commission;
  • Rent/Mortgage interest;
  • Utilities.
• All or a portion of these loans will be forgivable for businesses that maintain the same average payroll levels as in the previous year; forgivable amounts phase out as employers lower that.
• The bill also increases the SBA “Express Loan” limit from $350 thousand to $1 million.

What Does This Mean for REALTORS®?

• REALTORS® who are negatively impacted by the COVID-19 crisis are able to apply for SBA 7(a) loans of up to $10 million to cover business operating costs, including payroll, during the crisis (500 employees or fewer). (Section 1102)
• Small businesses and commercial tenants – clients of commercial practitioners – will be able to apply for these loans to cover business expenses, including rent and mortgage interest, during the crisis as well.
• A portion of the loans – that which goes toward payroll, rent, mortgage interest, and utilities – will be made forgivable for employers who maintain current salary levels (or bring staffing/salary levels back up by April 1 to pre-COVID-19 crisis levels). Employers who reduce their employee numbers or salaries will have the forgivable amount phased out, depending on their numbers. (Section 1106)

Student Loans

• Suspends all payment due on federal student loans for 6 months.
• Interest shall not accrue on these during this forbearance.
• For the purpose of loan forgiveness, loans will be deemed paid during the forbearance.
• Prohibits negative credit reporting or involuntary debt collection during forbearance period.

Tax

Highlights – What the tax changes mean for REALTORS® and their clients and businesses:

• REALTORS® and their families and their clients, as well as most Americans, with incomes below the thresholds will receive cash payments from the federal government in the amount of $1,200 per adult plus $500 for each child under the age of 17.  These payments should be sent out starting in April.
• REALTORS® with retirement accounts, including IRAs, can take early withdrawals of up to $100,000 from those accounts without having to pay the 10% early-withdrawal penalty.  Those who withdraw such funds can recontribute them to the plan over three years or can keep the money and pay the tax on the withdrawals over a three-year period.
• REALTORS® aged 70 1/2 or older do not have to worry about taking required minimum distributions from retirement plans in 2020, or to pay the taxes on those distributions.
• REALTORS® who make donations of up to $300 in charitable contributions in 2020 can deduct them whether they itemize or not.
• If your business has 100 or fewer employees, you can claim a refundable employee retention tax credit against payroll taxes of up to $5,000 per employee under certain circumstances.  Larger employers also can claim the credit, but with more restrictions.
• Employers and self-employed individuals can delay the payment of the employer-portion of the FICA (Social Security) payroll taxes or one-half the SECA (self-employment taxes) until after 2020 – one half is due in 2021 and the other half in 2022.
• Businesses with losses can carry back net operating losses (NOLs) to prior taxable years and get refunds of earlier taxes paid.

Details:

2020 Recovery rebates for individuals (section 2201):

• Tax credits are provided for individuals in the amount of $1,200 for single returns and $2,400 for joint returns
  • plus $500 for each child (under age 17 and qualifying for the child credit);
• Credits are reduced by 5% of the excess of adjusted gross income (AGI) over these thresholds:
  • $75,000 for a single return;
  • $150,000 for a joint return; and
  • $112,500 for a head of household return:
    • Thus, the credits would be fully phased out for income higher than the following amounts:
• $99,000 for a single person with no qualifying child;
• $198,000 for a couple filing a joint return with no qualifying children;
• $218,000 for a couple filing a joint return with two qualifying children;
• $146,500 for a single parent with one qualifying child:
  • (in all cases, the level of income before the phaseout is complete increases by $10,000 per child).
    • For limitation purposes, AGI is based on the 2019 tax return, if filed.  If not, then AGI on the 2018 return would be the limit.
• There is no income floor or phase-in – all whose income does not exceed the thresholds will receive the same amount.  Non-tax filers generally need not file a tax return to claim a rebate.
• The credits are not available to anyone who can be claimed as a dependent on another’s return.
• If a tax return has not yet been filed for 2019, the 2018 tax return will be the point of reference.  If no tax return was filed for either year, rebates can still be sent based on information on Social Security benefit statements.
• The rebates are fully available to residents of U.S. Territories, including Puerto Rico.
• The IRS will send out the payments electronically if any tax refund was sent in such a manner for the 2018 or 2019 tax return – also there will be a notice by mail to the last known address that the payment has been made electronically.  If not, a paper check will be sent.
• Also, the act calls for a public awareness campaign to inform people about the rebates.
• No credit allowed if correct ID numbers (Social Security numbers) were not on tax returns, except in cases of spouses of active military personnel.
• IRS and Social Security Administration are appropriated extra funds to carry out the rebates.

Special Rules for Withdrawals from Retirement Funds (section 2202):

• The 10% extra tax on early withdrawals from IRAs and qualified retirement plans shall not apply to distributions of up to $100,000 related to coronavirus:
  • These are distributions made in 2020 to an individual diagnosed with COVID-19 or whose spouse or dependent is diagnosed or who experiences adverse financial consequences as a result of being quarantined, furloughed, or laid off due to such virus or is unable to work due to lack of child care or closing or reduced hours of his or her own business.
• Such amounts can be repaid to the retirement plan over a 3-year period;
• If not repaid, the regular tax on the distribution can be paid over a three-year period;
• Certain coronavirus-related loans up to $100,000 from defined contribution plans are not treated as distributions and the repayment of such loans is extended.

Temporary Waiver of Required Minimum Distribution Rules for Certain Retirement Plans and Accounts (section 2203):

• The required minimum distribution (which requires people who turned age 70 ½ in 2019 to include a portion of their IRA or other defined contribution retirement account in their income) is waived for 2020.

Allowance of Partial Deduction for Charitable Contributions (section 2204):

• For 2020, charitable contributions of up to $300 are deductible for those who do not itemize deductions;
• Must be cash contributions to charities (but not to private foundations or donor advised funds).

Modification of Limitations on Charitable Contributions During 2020 (section 2205):

• The 60% of AGI limit for cash contributions is increased to 100% for charitable donations made in 2020.  For corporations, the 10% of taxable income limitation is increased to 25%.  For donations of food inventory, the limitation increases from 15% to 25%.

Tax Exclusion for Employer Payments of Student Loans (section 2206):

• Payments by employers on student loans of employees are not subject to tax in 2020, up to $5,250 per employee.  This cap also includes other educational assistance paid by the employer.

Employee Retention Credit for Employers Subject to Full or Partial Closure Due to COVID-19 (section 2301):

• Eligible employers (including certain tax-exempt organizations) can receive a refundable tax credit against payroll taxes for 50% of wages paid to certain employees during the COVID-19 crisis.
  • Wages subject to the credit for any employee cannot exceed $10,000, including health benefits.
  • The credit cannot exceed the employer’s amount of Social Security (OASDI) taxes paid by the employer, reduced by any credits allowed for paid sick leave and paid FMLA leave (enacted in earlier coronavirus legislation).
• Eligible employers are those:
  • carrying on a trade or business and that suffer a full or partial suspension of operations due to orders from a government authority to limit commerce, travel, or group meetings due to COVID-19; or that suffer a decline in quarterly gross receipts of more than 50%, measured against the same period in the prior year.
  • For employers with 100 or fewer full-time employees, all employee wages are eligible for the credit, regardless of whether an employee is furloughed or has hours reduced.
  • For employers with more than 100 full-time employees, wages eligible for the credit are those paid to employees when they are not working due to COVID-19-related circumstances.
  • The credit is not available to employers receiving Small Business Interruption Loans.
  • The credit is provided for wages paid or incurred from March 13 through December 31, 2020.

Delay of Payment of Employer Payroll Taxes (section 2302):

• Employers and self-employed individuals are allowed to defer payment of the employer share of the Social Security taxes of employees (this is one-half of the self-employment taxes of a self-employed individual) that arise between the effective date of the act and the end of 2020.  The deferred tax can be paid over the following two years, with half required to be paid by December 31, 2021, and the other half due by December 31, 2022.
  • Employers who take advantage of SBA 7(a) loans designated for payroll are not eligible.

Modifications for Net Operating Losses (section 2303):

• Allows businesses to carry back net operating losses from 2018, 2019 or 2020 against profitable years, up to five years, and get immediate refunds.  The current taxable income limitation is also temporarily removed to allow an NOL to fully offset income.

Modification of Limitation on Losses for Taxpayers Other Than Corporations (section 2304):

• Retroactively modifies limitation on loss provision passed in TCJA for individuals and pass-through businesses so they can utilize excess business losses and access cash flow through net operating loss carrybacks.

Modification of Credit for Prior Year Minimum Tax Liability for Corporations (section 2305):

• The corporate alternative minimum tax (AMT) was repealed by the Tax Cuts and Jobs Act, but corporate AMT credits were made available as refundable credits over several years, ending in 2021.  The provision accelerates the ability of companies to recover those AMT credits.

Modifications of Limitation on Business Interest (section 2306):

• Temporarily increases the amount of interest expense that businesses are allowed to deduct by increasing the 30% limitation to 50% of taxable income for 2019 and 2020.  Special rules apply for partnerships.  This will provide relief for larger businesses (including commercial real estate firms) with interest expense (firms with average annual gross receipts of $25 million are generally exempt from the interest deduction limitation rules).

Technical Amendment Regarding Qualified Improvement Property (section 2307):

Technical fix for Qualified Improvement Property – allows businesses to write off immediately the costs associated with improving internal improvements to certain real estate (including restaurants and retail stores), instead of having to depreciate them over the 39-year life of the building.  This corrects an error in the Tax Cuts and Jobs Act and allows companies to file for refunds with an amended tax return for 2018 and access cash and also encourages them to continue to invest in internal improvements to buildings.

Unemployment Insurance

TITLE II – Assistance for American Workers, Families and Businesses, Subtitle A

Pandemic Unemployment Assistance, (Section 2102)

• The temporary Pandemic Unemployment Assistance program functions as unemployment insurance.
• The assistance would be federal provided and administered by the states.
• Self-employed individuals, independent contractors, and other individuals who are unable to work as a direct result of COVID-19 public health emergency, and would not qualify for regular unemployment of extended benefits under state law are eligible to receive “Pandemic Unemployment Assistance.”
  • This excludes individuals who have an ability to telework or individuals who are receiving sick leave or other paid leave benefits
• The unemployment assistance benefits are provided to individuals who are unemployed, partially unemployed, or unable to work for the weeks those individuals were impacted as a result of COVID-19 between Jan. 27- December 31, 2020.
• Provides for a maximum of 39 weeks of assistance and the amount is set by federal regulations (26 C.F.R. 625.6) and state programs, and can be increased by $600/per week up to four months an amount referred to as Federal Pandemic Unemployment Compensation.”
• The amount of pandemic unemployment assistance provided to individuals will vary.
• Department of Labor will enter into an agreement with each willing state to provide these benefits and will cover 100 percent plus administrative costs.
• Funding is provided to pay the cost of the first week of unemployment benefits through December 31, 2020 for states that choose to pay recipients as they become unemployed instead of waiting one week before the individual is eligible to receive unemployment benefits.
• In order to expedite the pandemic benefits, the federal regulations for Disaster Unemployment Assistance will apply to Pandemic Unemployment Assistance.

Emergency Increase in Unemployment Compensation Benefits (Section 2104)

• States can enter into agreements with the DOL Secretary of Labor to receive “Federal Pandemic Unemployment Compensation” for its residents.
• This section provides individuals receiving unemployment insurance or Pandemic Unemployment Assistance with an additional $600 per week in Federal Pandemic Unemployment Assistance for up to four months.
• States have some authority to determine the timing of when the federal pandemic unemployment compensation is paid to individuals.

Pandemic Emergency Unemployment Compensation (Section 2107)

• Provides individuals receiving pandemic unemployment compensation to receive an additional 13 weeks of unemployment benefits through December 31, 2020 to help individuals who remain unemployed after weeks of state unemployment are no longer available.

Families First Coronavirus Response Act (FFCRA) Amendments

Limitation on paid leave (section 3601)

• Amends the Family and Medical Leave Act (FMLA) expansion in the FFCRA to ensure that no employer is required to pay more than $200 per day and $10,000 in the aggregate for each employee.

Paid leave for rehired employees (section 3606)

• Expands the FMLA leave in FFCRA to include as eligible employees, those that were employed for 30 days but were laid off by that employer after March 1, 2020, had worked for the employer for not less than 30 of the last 60 calendar days, and was rehired by the employer.

Emergency Paid Sick Leave Act Limitation (section 3602)

• Amends the emergency paid sick leave provisions in the FFCRA to
  • ensure that no employer is required to pay more than either $511/day and $5,110 in the aggregate for direct COVID-19 impact or $200/day and $2,000 in the aggregate for care of others related COVID-19 impact.