Employee Retention Tax Credit for Real Estate
The Employee Retention Credit is a tax credit available to employers who have been negatively impacted by COVID-19. According to Payrent.com, landlords and property management companies may also be eligible for the credit. In this article, we will discuss how the credit works, who qualifies, and how it can benefit real estate businesses.
What is the Employee Retention Credit?
The Employee Retention Credit is a refundable payroll tax credit available to businesses that have experienced a full or partial suspension of operations or a drop in gross receipts. As Forvis explains, the credit is available for wages paid from March 13, 2020 through December 31, 2020. The Consolidated Appropriations Act of 2021 has also provided enhancements to the ERC, allowing companies in the construction and real estate industries to potentially take advantage of both the PPP and ERC.
Why is the Employee Retention Credit Important for Real Estate?
As the COVID-19 pandemic has impacted businesses in many ways, including the real estate industry, the Employee Retention Credit can provide significant financial relief. According to KSM CPA, the IRS has updated the CARES Act and TCJA to provide additional relief for the real estate industry. Real estate professionals should consider these updates to maximize tax benefits, but should also consult with their advisors due to the complexity involved.
In the next sections, we will discuss how to qualify for the Employee Retention Credit, the new Recovery Startup Business Credit, and how the credit can impact the construction and real estate industry.
Qualifying for the Employee Retention Credit
To qualify for the Employee Retention Credit, employers must have experienced a suspension of operations or a decline in gross receipts and continued to pay their employees. Landlords and property management companies may also be eligible for the credit, according to Payrent.com. In this section, we will discuss how to qualify for the credit and how to claim it.
Suspension of Operations or Decline in Gross Receipts
As mentioned earlier, to qualify for the Employee Retention Credit, businesses must have experienced either a full or partial suspension of operations due to orders from an appropriate government authority related to COVID-19 or have experienced a significant decline in gross receipts. Forvis explains that the decline in gross receipts qualification is met if the business's gross receipts for a calendar quarter in 2020 are less than 50% of its gross receipts for the same calendar quarter in 2019.
Eligibility for Landlords and Property Management Companies
Landlords and property management companies may also be eligible for the Employee Retention Credit, as mentioned earlier. Payrent.com explains that to qualify, these businesses must have experienced a suspension of operations or a significant decline in gross receipts.
How to Claim the Credit
To claim the Employee Retention Credit, businesses can report it on their employment tax returns, according to Payrent.com. Alternatively, businesses can reduce their required deposits of payroll taxes to the IRS. Any excess credit can be refunded to the business.
The Recovery Startup Business Credit
The Recovery Startup Business Credit is a new employee retention credit available for the last two quarters of 2021. This credit is available for employers who start a new trade or business, including real estate rentals. In this section, we will discuss the details of this credit, including who is eligible and the amounts that can be claimed.
Qualifications for the Credit
According to Evergreen Small Business, employers with less than $1 million in gross receipts can receive the credit, with a $50,000 per quarter limit for ten employees. To qualify, the business must have been started after February 15, 2020. Employers in the construction industry may also be eligible for the credit if they were restricted by government orders or suffered a reduction in gross receipts.
Credit Amount Breakdown
The credit amount for the Recovery Startup Business Credit is $7,000 for the first seven employees for each of the third and fourth quarters of 2021. For the eighth employee, the credit amount is $6,000, and for the ninth and tenth employees, the credit amount is $3,000 each. Evergreen Small Business provides a helpful chart to illustrate the credit amount breakdown:
Employee | Q3 Credit | Q4 Credit |
---|---|---|
1-7 | $7,000 | $7,000 |
8 | $6,000 | $6,000 |
9 | $3,000 | $3,000 |
10 | $3,000 | $3,000 |
How to Claim the Credit
The Recovery Startup Business Credit can be claimed on the employer's employment tax return, according to Evergreen Small Business. The credit can also be claimed on IRS Form 941, Employer's Quarterly Federal Tax Return.
How the Employee Retention Credit Impacts the Construction and Real Estate Industry
The COVID-19 pandemic has impacted the construction and real estate industry differently, with residential construction booming and commercial construction slowing down. The Employee Retention Credit (ERC) is a refundable payroll tax credit available to businesses that have experienced a full or partial suspension of operations or a drop in gross receipts. In this section, we will discuss how the ERC can impact the construction and real estate industry.
Construction Industry
According to Forvis, the construction industry has been impacted by the pandemic in various ways, depending on the type of construction. For example, residential construction has seen a surge in demand, while commercial construction has slowed down. The ERC can provide financial relief to businesses in the construction industry that have experienced a suspension of operations or a decline in gross receipts.
Real Estate Industry
The real estate industry has also been impacted by the pandemic, with many businesses experiencing a decline in gross receipts. Landlords and property management companies may also be eligible for the Employee Retention Credit, according to Payrent.com. Real estate professionals should consider the updates to the CARES Act and TCJA to maximize tax benefits, but should consult with their advisors due to the complexity involved, as mentioned earlier.
PPP and ERC
The Consolidated Appropriations Act of 2021 has provided enhancements to the ERC, allowing businesses in the construction and real estate industries to potentially take advantage of both the PPP and ERC. As Forvis explains, businesses that have received a PPP loan can still qualify for the ERC, but the same wages cannot be used for both the PPP loan forgiveness and the ERC. DHG has requested additional time for taxpayers to make payment of their 2020 income tax liability associated with this wage adjustment and can assist companies in understanding opportunities associated with the credit.
How to Maximize the Employee Retention Credit for Real Estate
The Employee Retention Credit can provide a significant benefit to the real estate industry during the COVID-19 pandemic. In this section, we will discuss strategies for maximizing the credit.
Consult with Advisors
As mentioned earlier, real estate professionals should consult with their advisors due to the complexity involved. The IRS has provided guidance on the Employee Retention Credit, but it can still be challenging to navigate. An experienced tax advisor can help businesses determine if they are eligible for the credit and how to claim it.
Keep Accurate Records
To claim the Employee Retention Credit, businesses must keep accurate records of the wages paid to employees. KSM CPAs explains that documentation should include the amount of qualified wages paid, the dates of the payments, the name of the employees who received the wages, and the location of the work performed by the employees.
Consider the Recovery Startup Business Credit
Real estate businesses that started up after February 15, 2020, may be eligible for the Recovery Startup Business Credit. As discussed earlier, this credit can provide a significant benefit to businesses that meet the eligibility requirements.
Review the CARES Act and TCJA Updates
The IRS has updated the CARES Act and TCJA to provide additional relief for the real estate industry during the COVID-19 pandemic, including payroll tax provisions and guidance on the QBI deduction. Real estate professionals should review these updates to maximize tax benefits.
Take Advantage of Both PPP and ERC
As mentioned earlier, businesses in the construction and real estate industries can potentially take advantage of both the PPP and ERC. Businesses that have received a PPP loan can still qualify for the ERC, but the same wages cannot be used for both the PPP loan forgiveness and the ERC. DHG has requested additional time for taxpayers to make payment of their 2020 income tax liability associated with this wage adjustment and can assist companies in understanding opportunities associated with the credit.
Conclusion
The Employee Retention Credit can provide a significant benefit to businesses in the real estate industry during the COVID-19 pandemic. The credit is available to employers who have been negatively impacted by the pandemic and have continued to pay their employees. Landlords, property management companies, and businesses that started up after February 15, 2020, may also be eligible for the credit.
To maximize the benefit of the Employee Retention Credit, businesses should consult with their advisors, keep accurate records, consider the Recovery Startup Business Credit, review the CARES Act and TCJA updates, and take advantage of both the PPP and ERC if eligible.
The COVID-19 pandemic has impacted the real estate industry in various ways, and the Employee Retention Credit can provide much-needed financial relief. Real estate professionals should take advantage of all available tax benefits and credits to help their businesses thrive during these challenging times.
Ready to Take Advantage of the Employee Retention Credit for Real Estate?
The Employee Retention Credit can provide a significant benefit to businesses in the real estate industry during the COVID-19 pandemic. If you're ready to take advantage of this tax credit, there are several steps you can take to maximize its benefits.
Consult with your advisors to determine if your business is eligible for the credit and how to claim it. Keep accurate records of the wages paid to employees and review the CARES Act and TCJA updates to maximize tax benefits. Consider the Recovery Startup Business Credit and take advantage of both the PPP and ERC if eligible.
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Don't miss out on the opportunity to benefit from the Employee Retention Credit. Contact your tax advisor today to learn more about how you can qualify for this valuable tax credit.
Q & A
Q. Who is eligible for the employee retention tax credit for real estate?
A. Employers who have been negatively impacted by COVID-19 and continue to pay their employees.
Q. What is the employee retention tax credit for real estate?
A. It's a tax credit available to real estate businesses impacted by COVID-19 to help retain employees.
Q. How can real estate businesses maximize the employee retention tax credit?
A. Consult with advisors, keep accurate records, review the CARES Act and TCJA updates, and consider the Recovery Startup Business Credit.
Q. Who can help real estate businesses claim the employee retention tax credit?
A. An experienced tax advisor can help businesses determine if they are eligible and how to claim it.
Q. What documentation is needed to claim the employee retention tax credit?
A. Documentation should include qualified wages paid, dates of payments, employee names, and work locations.
Q. How does the employee retention tax credit differ from the PPP loan?
A. The ERC is a refundable payroll tax credit, while PPP loans provide forgivable loans to cover payroll and other expenses.
Q. What happens after a real estate business claims the employee retention tax credit?
A. Businesses may receive a refund for the credit or carry it forward to future tax years.