The Consolidated Appropriations Act (CAA) was passed on Dec. 21, 2020 with overwhelming majorities in both Houses of Congress and signed into law six days later. The CAA contains much-needed stimulus relief and helpful clarification regarding the tax treatment of Paycheck Protection Program (PPP) loans. While commercial real estate owners were mostly unable to take advantage of the PPP, there are other tax provisions included in the CAA that may be more beneficial for 2021 planning.
Employee Retention Tax Credit
The Coronavirus Aid, Relief, and Economic Security (CARES) Act created a payroll tax credit that employers could use to offset the cost of retaining employees – the Employee Retention Tax Credit (ERTC). Employers could claim the credit on a quarterly basis if they experienced a 50% decline in 2020 gross receipts compared to the same quarter in 2019. The credit is equal to 50% of qualified wages and health plan expenses after March 12, 2020 and before Jan. 1, 2021. Employers can claim a per-employee maximum of $10,000 in ERTCs.
Under the CAA, the ERTC is extended to June 30, 2021, and the size of the credit is increased to 70% of eligible wages and health expenses incurred between Jan. 1, 2021, and June 30, 2021 with the same per-employee maximum. The CAA also permits employers who claimed PPP loans to take the credit (whereas the CARES Act had specifically excluded them). However, to the extent that wages were used in the calculation of forgiveness of any PPP loan, they may not be used again to calculate the ERTC.
To get the most out of the ERTC in 2021, commercial real estate owners must follow special rules provided by the CAA that will allow employers to claim retroactive ERTC benefits. This is helpful because payroll tax returns have already been filed for the first three quarters of 2020. The CAA permits an employer to treat the retroactive ERTC benefits as incurred during the fourth quarter of 2020. Retroactive benefits are based on eligible wages paid after Dec. 31, 2019 and before Oct. 1, 2020. These cash refunds may be accessed by amending (with a Form 941) any previously filed payroll tax returns for any quarter that experienced the decline compared to the same quarter in 2019.
Energy-Efficient Commercial Buildings Deduction (Section 179D)
Another significant tax benefit for commercial real estate owners is the extension of the deduction for energy-efficient building investments. The CAA made Section 179D permanent, ensuring the continuation of deductions for energy efficiency improvements to buildings, including lighting, heating, cooling, ventilation and hot water systems. The provision also indexes for inflation the amount of the $1.80-per-square-foot limitation.
Work Opportunity Tax Credit
Another extension to note is the Work Opportunity Tax Credit (WOTC) program, which the CAA extended through 2025. This credit is for employers hiring individuals who are members of one or more of 10 targeted groups, including young individuals and veterans.
The Family First Coronavirus Response Act (FFCRA) set forth that employers cannot claim both WOTC and ERTC credits for the same employee and the CAA upheld this stipulation.
Commercial real estate owners should also take note of extensions and phase-outs of energy credits. The CAA extends the current 26% investment tax credit for any solar energy property, fiber-optic solar equipment, fuel cell property and small wind energy property that begins construction by the end of 2022. The CAA also extends the 22% rate for a property that begins construction by the end of 2023, after which the credit is reduced to 10% or 0%.
The 10% investment credit is also extended for any microturbine property, geothermal heat pumps, and combined heat and power property that begins construction before the end of 2023.
Employee Benefits-Related Credits
The CAA extended credits for some employee benefits as well. The refundable payroll tax credit for paid sick and family leave established as a part of the FFCRA was extended through the end of March 2021. Only some commercial real estate owners will qualify for this credit extension, as the program is for private-sector employers with fewer than 500 employees (and government entities).
Also extended was the employer tax credit for paid family and medical leave through 2025. Eligible employers can claim an elective general business credit based on eligible wages paid to qualifying employees with respect to family and medical leave. The CAA separates general business credit from FFCRA credit. Taxpayers who claim the FFCRA credit cannot use those wages for purposes of calculating this credit. The maximum amount of family and medical leave that may be taken into account with respect to any qualifying employee is 12 weeks per taxable year.
Where Can I Learn More?
For more information on how the latest stimulus provisions in the CAA affect the commercial real estate industry, contact our team.