The advent of the COVID-19 pandemic has dramatically changed the behavior of consumers and businesses. The severe economic impact has forced many companies to close and people around the world have lost their jobs. But it was just the beginning.
Even though economies began to open up again, businesses of all sizes are still being hit by the long-term consequences of COVID-19. Because of this, governments around the world are continuously providing financial relief efforts and programs to companies affected by the coronavirus outbreak.
Part of the government’s aid package is COVID property tax relief for businesses and property owners. Let’s see how it can benefit your business to increase visibility and keep you updated.
What is COVID property tax relief?
Americans severely affected by the COVID-19 emergency have been relieved of tax deadlines. While tax breaks vary widely by country, state, and industry, they often include tax returns, payment extensions, and even temporary tax cuts.
However, one of the provisions of the U.S. aid package is relevant to property tax. This is due to the fact that the majority of income generating properties will obviously suffer financial losses from the coronavirus.
Basically, property tax relief falls into the following categories:
- Disaster Relief: It specifically covers physical damage caused by typical accidents or disasters such as fire, flood or earthquake.
- Economic relief: It applies when an income-generating property suffers a loss of income caused by general economic conditions.
Note that when the economy declines like COVID-19, the loss in value should be due to lost revenue. This means that the company’s physical property remains intact but has limited or no income. This is where the relief of the COVID property tax comes into play.
What are the benefits of COVID Property Tax Relief?
Given the ongoing economic impact of the coronavirus, there are several options for possible economic relief for businesses and property owners. Note that property tax programs can vary from state to state and from county to county. It is therefore essential that you find out more about the legal provisions in your place of residence.
For general reference, here are the benefits businesses can get from COVID property tax relief through the Coronavirus Aid, Relief, and Economic Security Act, or simply as the CARES Act.
The CARES Act has made some changes that benefit commercial property owners and tenants. On the one hand, there are technical corrections in the depreciation treatment of qualified improvement properties (QIP).
QIP basically includes any improvement to an interior part of non-residential real estate. Before the CARES law was updated, you could only write it off over 39 years. Due to a necessary economic relief in the midst of the coronavirus pandemic, the CARES law corrected the error and changed the depreciation period for QIP to 15 years.
Because of this, you can immediately deduct 100% of facility improvement costs instead of writing off 39 year improvements. These are bonus write-offs, especially if you are in the hardest-hit retail and hospitality industries like hotels and restaurants.
- Increased business interest limit
There is a limit to the amount of business interest that you can deduct annually. Because of these limits, companies could not deduct corporate interest expenses above 30% of the Taxpayer’s Adjustable Income (ATI). If the business interest expense exceeds the difference, the difference should be carried forward to the next tax year.
Starting in 2019 and 2020, CARES ACT will increase ATI’s deductible interest amount to 50%. If your business has a lot of debt, you may be able to get a cash flow boost and pay less tax on your financing. This can also be a considerable relief in the event of a loss of income in your business object.
- Tax-free lending
One of the most important parts of the CARES ACT is the distribution of more than $ 349 billion through a Paycheck Protection Program (PPP). The loans in the program are forgivable as long as you spend 60% of them on employee wages and salaries. The other 40% of the loan can be used to pay mortgage interest, rental obligations, and utilities.
However, in order for you to get these futile loans, you must meet certain criteria. For one, your company should have 500 or fewer employees. Note that while most of these futile loans are tax-free, some states may require tax to be paid. So don’t forget to check your local regulations.
Tips for managing your property taxes during a pandemic
While the government has given numerous tax breaks since the advent of COVID-19 and its economic impact, you most likely want to secure tax breaks as much as possible. This is not possible without certain challenges.
So we’ve added some tips on how to manage your property taxes during a pandemic.
- Understand the CARES ACT and other help options: Take the time to understand the CARES law and other relief efforts. It is important to review each opportunity and understand how it is affecting your business. Be aware that your company may not qualify for all tax breaks and it is of the utmost importance to make the right decision.
- Justifying arguments: You cannot entrust your property taxes solely to government tax relief. If you believe your business property has high taxable values, then you need to equip yourself for the appeal. To do this, however, you need to justify each argument. One way to do this is to show the auditor hard numbers that show how COVID-19 affected your property.
- Work with a tax advisor: Managing your taxes can be tricky at times. However, if you want to get the most out of government tax breaks, you should work with a tax professional. That way, you can make a more informed decision about your taxes.
The COVID-19 pandemic has caused huge economic losses for companies of all sizes. While the CARES law tax break is a good cushion for businesses to fall back on, it may not be enough to reimburse all financial damages caused by COVID-19. It also does not guarantee stress-free tax activities. You may still need professional help to review your property taxes and manage the financial consequences of COVID-19.
Lauren Cordell writes on a variety of financial and business websites. Most of her writings focus on helping small business owners and entrepreneurs manage their finances effectively. She deals with topics like accounting, insurance, taxes, economics and anything that trains those interested in business.
Published on April 16, 2021