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Tax Changes under the CARES Act

The federal government’s $2 trillion economic rescue package includes financial aid for individuals and industries that are struggling to survive the Covid-19 pandemic.

However, it also includes a potential benefit for America’s real estate investors.

Senate Republicans inserted a provision that would permit wealthy investors to use losses generated by real estate to minimize their taxes on profits on other gains, such as from investments. Under the existing tax code, when real estate investors generate losses from gradually writing down the value of their properties, a process known as depreciation, they can use some of those losses to offset other taxes. The result is potential big tax breaks stemming from only-on-paper losses, even if they enjoy big cash profits in the real world.

The use of those losses was limited by the 2017 “Tax Cuts and Jobs Act”. The losses could be used only to shelter the first $500,000 of a married couple’s non-business income, such as capital gains from investments. Any leftover losses got rolled over to future years. The new stimulus bill lifts that restriction for three years — this year, and two retroactive years — a boon for couples with more than $500,000 in annual capital gains or income from sources other than their business.

A draft congressional analysis this week found that the change is the second-biggest tax giveaway in the $2 trillion stimulus package. That cost analysis also includes the impact of some smaller technical changes to the law. Other industries, like oil and gas and commodities trading, also stand to benefit from the change.

This publication is issued by Simon Meyrowitz & Meyrowitz, P.C. for informational purposes only and does not constitute legal advice or establish an attorney-client relationship. To ensure compliance with requirements imposed by the IRS, we inform you that unless specifically indicated otherwise, any tax advice contained in this publication was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any tax-related matter addressed herein. In some jurisdictions, this publication may be considered attorney advertising.

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