The advent of the COVID-19 pandemic has dramatically changed how consumers behave, and businesses act. Due to its severe economic impact, many companies had to close down, and people worldwide have lost their jobs. But it was just the beginning.
Although economies began to reopen, businesses of any size are still experiencing the long-term consequences of COVID-19. That’s why governments around the globe are continuously providing financial relief measures and programs to companies affected by the outbreak of coronavirus.
Part of the government’s aid package is the COVID property tax relief for businesses and property owners. To raise their visibility and keep you well-informed, let’s see how your business can benefit from it.
What Is COVID Property Tax Relief?
Americans who have been greatly affected by the COVID-19 emergency were provided relief from tax deadlines. Although tax relief varies largely by country, state, and industry, it often includes tax filing, payment extensions, and even temporary rate reductions.
But one of the provisions in the U.S relief package is relevant to property taxes. It is due to the fact that the majority of the income-generating properties will obviously suffer coronavirus financial losses.
Generally, property tax relief falls into the following categories:
- Disaster Relief: It specifically covers physical damage due to typical misfortunes or calamities, such as fire, flood, or earthquake.
- Economic Relief: It applies when an income-generating property suffers a loss of revenue caused by general economic conditions.
Note that for an economic decline, such as the one from COVID-19, the value decline should be due to the loss of revenue. It means the business’s physical property remains intact, but it is limited or no revenue generated. That is where COVID property tax relief comes into play.
What Are The Benefits of COVID Property Tax Relief?
As the economic fallout from coronavirus continues, there are several avenues of potential economic relief for businesses and property owners. Note that property tax programs may vary from every state and municipality. Thus, make sure to check with the legislation in your place of residence.
But for general reference, here are the benefits that businesses may get from COVID property tax relief through the Coronavirus Aid, Relief, and Economic Security Act or simply known as the CARES Act.
- Bonus Depreciation
The CARES Act has made some amendments that will benefit commercial property owners and tenants. For one thing, there are technical corrections to the depreciation treatment of qualified improvement property (QIP).
QIP basically includes any improvement to an interior portion of nonresidential real property. Before updating the CARES Act, you could only write it off over 39 years. But due to a necessary economic relief in the midst of the coronavirus pandemic, the CARES act fixed the error and changed the depreciation period for QIP to 15 years.
Because of that, you can instantly deduct 100% of the cost of improving facilities instead of depreciating improvements over 39 years. It’s bonus depreciation deductions, especially if you belong to the hard-hit retail and hospitality industries, such as hotels and restaurants.
- Increased Business Interest Limit
There’s a limitation on the amount of business interest expense you can deduct annually. Such limits didn’t allow businesses to deduct any business interest expenses beyond 30% of the taxpayer’s adjustable income (ATI). If the business interest expenses exceed, the difference should be carried forward to the next taxable year.
But beginning in 2019 and 2020, the CARES ACT increases the amount of ATI’s deductible interest to 50%. If your business has lots of debts, you can potentially get a cash flow boost and pay less on taxes for your financing. It can also represent a significant relief from losing revenue in your business property.
- Tax-Free Loan Forgiveness
One of the most significant parts of the CARES ACT is distributing more than $349 billion through a paycheck protection program (PPP). The loans in the program are forgivable as long as you spend 60% of it on employee payroll costs. You can use the other 40% of the loan to pay for mortgage interests, rent obligations, and utility.
But in order for you to get these forgivable loans, you must meet certain criteria. For one, your business should have 500 or fewer employees. Note that while most of these forgivable loans are tax-exempt, some states may require you to pay taxes. Thus, don’t forget to check your local regulations.
Tips On Managing Your Property Taxes During A Pandemic
While the government has been extending numerous tax reliefs since the emergence of COVID-19 and its economic effects, you most likely want to ensure tax breaks as much as possible. Doing so doesn’t come without certain challenges.
Thus, we’ve added a few tips on how to manage your property taxes during a pandemic.
- Understand The CARES ACT and Other Relief Options: Take the time to understand the CARES Act and other relief options. It’s essential to review every opportunity and understand its implications for your business. Note that your business may not qualify for all the tax relief, and making the right decision is of utmost importance.
- Substantiate Arguments: You cannot solely entrust your property taxes to the government’s tax relief. If you think you get high taxable values on your business property, you must equip yourself to appeal. But to do this, you have to substantiate every argument, and one way to do that is to show the assessor hard figures indicating how COVID-19 affected your property.
- Work With A Tax Professional: Managing your taxes can be complicated at times. But if you want to make the most out of the government’s tax relief, consider working with a tax professional. This way, you’d be able to make a more informed decision on your taxes.
The COVID-19 pandemic has caused great economic losses to businesses of all sizes. Although the tax relief through the CARES Act is a good cushion that companies can fall back on, it may not be enough to recover all the financial damages brought by COVID-19. It also doesn’t guarantee stress-free tax-related activities. You might still need professional help to go over your property taxes and help you cope with the financial fallout of COVID-19.
Lauren Cordell writes on various financial and business websites. Most of her writings focus on helping small business owners and entrepreneurs manage their finances effectively. She tackles topics on accounting, insurance, taxes, economics, and anything that will educate the business-minded ones.