CARES Act Changes Rules for NOL Carrybacks and QIP
Kirsch CPA Group
Sep 15, 2020
Consider these two favorable federal income tax rule changes included in the Coronavirus Aid, Relief and Economic Security (CARES) Act when deciding whether to take advantage of first-year depreciation breaks for assets placed in service this year.
1. NOL carrybacks. The CARES Act allows net operating losses (NOLs) that arise in tax years beginning in 2018 through 2020 to be carried back for up to five years. Many businesses may have 2020 NOLs due to the COVID-19 economic fallout. Those NOLs can be carried back as far as 2015.
NOL carrybacks to any pre-2018 tax year could be especially beneficial. That’s because the federal income tax rates for both individuals and corporations were lowered for tax years beginning in 2018 under the Tax Cuts and Jobs Act (TCJA).
2. Real estate qualified improvement property (QIP). When drafting the TCJA, Congress intended to allow 100% first-year bonus depreciation for real estate QIP placed in service in 2018 through 2022. Congress also intended to give you the option of claiming 15-year straight-line depreciation for QIP placed in service in 2018 and beyond.
QIP is defined as an improvement to an interior portion of a nonresidential building that’s placed in service after the date the building was first placed in service. However, QIP doesn’t include expenditures:
- To enlarge a building,
- For an elevator or escalator, or
- For any internal structural framework of a building.
Due to an error in drafting the TCJA, the intended first-year bonus depreciation break for QIP never made it into the statutory language. The CARES Act includes a retroactive technical correction to fix that oversight.
The correction causes QIP to be treated as property that can be depreciated over 15 years for federal income tax purposes, making it eligible for first-year bonus depreciation. That means real estate owners can claim 100% first-year bonus depreciation for QIP placed in service in 2018 through 2022.
Important: The correction has a retroactive effect for QIP that was placed in service in 2018 and 2019. Before the correction, taxpayers generally had to treat QIP placed in service in those years as nonresidential real property to be depreciated over 39 years using the straight-line method. Consult your tax advisor to determine whether you should file an amended tax return for 2018 and/or 2019.
About The Author
Kirsch CPA Group is a full service CPA and business advisory firm helping businesses and organizations with accounting,…
Tags
Sign Up for Email Updates
Related Articles
Does your Business Deduct Research & Development Expenses? Major Changes Impact 2022 Taxes…
- 11-09-22
- Elizabeth Michalak
Why Have Your Financial Statements Reviewed (Even When Not Required)
- 10-17-22
- Kirsch CPA Group
Case Study: Strategic Accounting Support from Acquisition to Sale
- 09-20-22
- Kirsch CPA Group
Prevent a Poorly Structured Chart of Accounts from Hiding Your Profitability
- 01-06-22
- Nick Roell
Entrepreneurial Mindset: Kirsch CPA Group Sets a Framework for Growth
- 10-28-21
- Kirsch CPA Group
What Your Numbers Are Saying: Are You Listening?
Part 2: How Attractive Is Your Balance Sheet?
- 07-19-21
- Kirsch CPA Group
What Your Numbers Are Saying: Are You Listening?
Part 1: Do You Know Your Profitability?
- 06-09-21
- Kirsch CPA Group
Using Cash Flow Forecasting to Avoid Problems & Grow Your Business
- 04-07-21
- Kirsch CPA Group
Selecting the Right Payroll System for Your Construction Business
- 04-01-21
- Kirsch CPA Group
Self-Employed May Be Eligible for COVID-Related Tax Breaks for 2020
- 03-17-21
- Kirsch CPA Group
COVID-19 Relief: Overview of the New American Rescue Plan Act for Individuals
- 03-17-21
- Kirsch CPA Group
COVID-19 Relief: Business Overview of the New American Rescue Plan Act
- 03-17-21
- Kirsch CPA Group
Opportunity Zone Investments: A Tax Deferral Opportunity You May Have Overlooked
- 02-17-21
- Kirsch CPA Group
The Status of Temporary COVID Tax Relief Measures After the New Law
- 01-21-21
- Kirsch CPA Group
8 Accounting Practices for a Financially Healthy Construction Business
- 01-07-21
- Kirsch CPA Group
Appropriations Law Adds Some Business Tax Breaks and Extends Others
- 01-07-21
- Kirsch CPA Group
Contending With the Patchwork of State Requirements for Nonprofits
- 12-17-20
- Kirsch CPA Group
Employee or Independent Contractor? The Rules May Be Getting Simpler
- 11-12-20
- Kirsch CPA Group
Do the COVID-19 Extended Deadlines for Health Plans Still Apply?
- 11-12-20
- Kirsch CPA Group
Using Remote Workers? Protect Sensitive Company Data from Exposure
- 10-28-20
- Kirsch CPA Group
What You Need to Know About the Deferral of Payroll Tax Obligations
- 09-15-20
- Kirsch CPA Group
Hobby or Business? How to Treat COVID-19 Sideline Activities for Taxes
- 09-15-20
- Kirsch CPA Group
Monitor These 3 Things as COVID-19 Changes Your Nonprofit’s Priorities
- 08-11-20
- Kirsch CPA Group
FASB Offers Reprieve from Updated Lease and Revenue Recognition Rules
- 07-23-20
- Kirsch CPA Group
COVID-19 Crisis May Affect Tax Angles for Rental Property Losses
- 07-10-20
- Kirsch CPA Group
Last-Minute Strategies for Businesses that Deferred Filing Tax Returns
- 07-01-20
- Kirsch CPA Group
Can Your Business Survive and Even Thrive in These Trying Times?
- 06-18-20
- Kirsch CPA Group
Five COVID-19 Obstacles a Construction Company Needs to Navigate
- 06-12-20
- Kirsch CPA Group
Cash Flow Tip: Postpone Payment of Certain Federal Employer Payroll Taxes
- 04-20-20
- Sue Schloemer
Tax Filing Deadline Remains April 15 – Payment Due Extended to July 15
- 03-19-20
- John Kirsch
8 strategies to help you adapt to economic down turn without layoffs
- 02-24-18
- Diane Glover
Which Research Activities Qualify for the Qualified Small Business Tax Credits
- 07-17-17
- Diane Glover