The CARES ACT and potential tax refunds

Depreciation acceleration on leasehold
improvements for years 2018 and 2019.

Contact John Michael Smith or Anthony Sabella if you would like to receive more information.
The recently enacted CARES Act included several changes to the Internal Revenue Code (“IRC”). One of these changes was to the depreciation recovery period for Qualified Improvement Property (“QIP”). The changes made can provide a significant acceleration of depreciation for certain qualifying improvements. It is important to note some background on QIP in order to fully understand the changes made by the CARES Act including the tax implications for a wide variety of taxpayers. Specifically, taxpayers in the manufacturing, real estate, restaurant, retail, and hospitality businesses can expect significant tax saving opportunities. Additionally, the importance of cost segregation studies will be apparent based on the requirements to take advantage of the change.
Reviewing all leasehold improvements incurred in 2018 and 2019 will allow the taxpayer to amend their tax returns to accelerate depreciation on leasehold improvements. This may in fact lead to significant Net Operating Losses which can now be carried back up to 3 years to recapture taxes paid. This may allow taxpayers to request significant tax refunds on their personal tax returns.

5 Year Net Operating Loss Carryback

The Coronavirus Aid, Relief, and Economic Security (CARES) Act now allows taxpayers to carry back any NOL arising in a taxable year beginning after Dec. 31, 2017, and before Jan. 1, 2021, to each of the five taxable years preceding the taxable year in which the NOL arises. The goal of the CARES Act is to get cash quickly into the hands of taxpayers impacted by COVID-19.
In addition to the NOL adjustments, the CARES Act also modified the business interest deduction limitations, the qualified improvement property depreciable life, and the noncorporate excess business loss deduction. Taxpayers that did not have an NOL in 2018 or 2019 could now have one as a result of the CARES Act changes. Be prepared to work with your tax advisor to model out how all of these could affect your 2018 and 2019 tax positions. Taxpayers with calendar years that have NOLs arising in 2018 have until June 30, 2020, to take advantage of the extended carryback filing time frame.

Share This: