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December 18, 2023 | read

COVID-19: Staying In Business with The Paycheck Protection Program, Economic Injury Disaster Loans, and the Employee Retention Tax Credit

Brandon Hall

The CARES Act was passed and became law on Friday, March 27th 2020. This Act is an emergency stimulus package in response to the COVID-19 crisis, and many portions of this Act are designed to help individuals, small businesses, and particularly distressed industries.

Special Report Summarizing the COVID-19 Legislation

What is the Paycheck Protection Program (PPP)?

The Paycheck Protection Program is a way for small businesses to keep the lights on during COVID-19 and is a direct incentive to retain all employees on payroll. This Program, more specifically this loan, can be extremely powerful if you meet and follow certain requirements.

Essentially, if your small business has been negatively impacted by COVID-19 and you’re concerned about how you will cover costs for the remainder of the Coronavirus crisis, the PPP will allow you to take out loan with no collateral or personal guarantees required. Banks will be facilitating these loans that will be approved by the SBA and backed by the federal government. All fees related to this loan will be waived.

These PPP loans are eligible for forgiveness. You must meet certain specific requirements to be eligible for forgiveness. If met and the funds are used correctly, the PPP is a replacement of revenue because it can be forgiven. Generally, forgiven loans are considered taxable income. In this case, there is a clause in the act that says this loan will not be considered taxable income if it’s forgiven!

Eligibility Requirements and Loan Amount

First, you must have a business or be self-employed and have less than 500 employees to qualify. To apply, you also must make a “good faith” certification, meaning that you state, to your lender, that the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operation.

To receive the loan, you must also assert that that the funds will be used to retain workers, maintain payroll, pay the rent/lease, pay the mortgage interest, and pay utilities. Your lender will also look to verify that you do not have a pending application for another loan related to the Coronavirus crisis, such as an EIDL.

The maximum amount of the loan is determined by your average total payroll costs over the last 12 months times 2.5 or $10,000,000, whichever is less. 

“Payroll costs” includes: salaries and wages, vacation, medical and sick leave, healthcare, retirement benefits, and the state and local taxes on employee compensation. When calculating the amount of the loan, any amounts of annual salary paid to highly compensated employees are capped at $100,000. 

There has been an interesting discussion on whether business owners can count payments made to independent contractors as “payroll costs.” This discussion is arising from text in the Act that says the term “payroll costs” includes: the sum of payments of any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earning from self-employment , or similar compensation…

We interpret this as meaning that business owners can indeed include amounts paid to independent, self-employed, contractors. However, the SBA has interpreted this to mean that only self-employed individuals can count the payments made to independent contractors in their issued guidance to lenders. Ultimately, the lender you work with will be the one calling the shots, regardless of interpretation. 

You must only use the loan funds for qualified expenses. Qualified expenses are basically those expenses necessary to keep the lights on and make payroll. Examples are payroll costs, retirement plans, health insurance, mortgage interest, interest on other debt payments incurred before February 15th, 2020, rent payments, and utilities.

US Chamber of Commerce Eligibility & Borrowing Info


Beginning on the date you sign, you have an 8-week period to apply the loan proceeds to any qualified expenses mentioned above. Loan funds applied to qualified expenses are eligible for full forgiveness on a tax-free basis.

Forgiveness will be reduced if full-time headcount declines or if salaries and wages paid declines. You cannot fire or lay-off anyone and still be eligible for full forgiveness.

If you have already reduced your staff, you do have the ability to rehire before June 30, 2020 and maintain eligibility for forgiveness. Second, you must not reduce any salaries by more than 25% of anyone who makes less than $100K annually.

If you reduce staff or wages, the amount of the loan eligible for forgiveness is reduced by multiplying the forgiveness amount by the quotient obtained by dividing

  • the average number of FTEs of the borrower during the 8-week period from the date the by
    • the average number of FTEs per month from Feb. 15, 2019 through June 30, 2019; OR
    • the average number of FTEs per month from Jan. 1, 2020 through Feb. 29, 2020

PPP Borrower Information Fact Sheet PDF

Application Details:

Lenders can begin processing loan applications beginning April 3, 2020.

Participating lenders include: existing SBA 7(a) lenders, federally insured depository and credit institutions, and Farm Credit System institutions. Other lenders can make these loans once they are approved and enrolled in the program, so you should consult with your local lender.

PPP Application – 3/30/20 – V3

Economic Injury Disaster Loans (EIDL)

The President has officially declared the COVID-19 crisis to be a national emergency. This allows the SBA to make the Economic Injury Disaster Loan declaration. Typically, SBA loans have a higher degree of testing and necessary requirements to qualify. This national emergency declaration and the impact of COVID-19 have pushed the SBA to reduce the testing and requirements for these loans in an effort to address the temporary loss of revenue many small business are seeing.

How Can I Use an EIDL?

EIDLs can be used for almost anything related to your operations. These Economic Injury Disaster Loans can be used to pay fixed debts, payroll, accounts payable, and other bills and are not eligible for forgiveness. Since the passing of the CARES Act, EIDLs can also be used for maintaining payroll/retaining employees, rent or mortgage payments, supply chain costs that have been increased due to COVID-19, the repayment of other specific debt obligations that cannot be paid due to the loss of revenue from the COVID-19 crisis, and sick leave to employees unable to work directly due to COVID-19.

Who Qualifies?

In addition to the expansion of qualified costs, eligibility for EIDLs has been expanded and some requirements have been waived. In addition to small businesses and non-profit organizations, sole proprietorships and independent contractors are now eligible.

Previously, the borrower needed to have been in business for a full year prior to the disaster event. Due to COVID-19, this date is now January 1st, 2020. Previously, borrowers needed to provide personal collateral, and this has been waived. Typically these loans are only available if you have no other credit sources available. After the CARES Act, lenders are no longer looking at your attempts to obtain financing elsewhere.

EIDL Grants

The CARES Act appropriates $10B for EIDL Grants for anyone who applies for an EIDL. These grants are advances on a loan that don’t need to be repaid, and they exist because it usually takes some time to process an EIDL. Now,  a grant of $10,000 will be received in 3 days after successful application. This advance does not have to be repaid even if your EIDL application is ultimately declined.

EIDL Terms

The interest rate is 3.75% for small businesses and 2.75% for non-profits. These are COVID-19-specific interest rates, the maximum EIDL rate is 4%. The term is determined on a case-by-case basis based on the entity’s ability to repay – but they are generally very favorable, such as 30 years.

SBA Disaster Loan Assistance Application

Refinancing an Existing EIDL Loan as a PPP Loan

If you have received an EIDL loan unrelated to the Coronavirus, you may also apply for a PPP loan. If you received an EIDL loan due to COVID-19, you can refinance your EIDL loan with a PPP loan.

As long as you meet the eligibility requirements for a PPP loan, you’re also eligible for the loan forgiveness aspect of the PPP loan. The advance/grant you received related to the EIDL loan would be deducted from the amount that could be forgiven on the PPP loan.

The PPP loan was designed to address the same issues that an EIDL does, so you cannot apply for both of these loans at the same time. If you would like to roll your EIDL into a PPP loan you may do this, but the $10K grant that you received will be deducted from the amount that you can be forgiven on the PPP loan.

Employee Retention Tax Credit

This tax credit is only available if you have not taken a PPP loan or an EIDL. If you cannot apply or are otherwise uninterested in either of these loans, you may want to consider the Employee Retention Tax Credit.

Eligible employers who retain employees during the pandemic will be eligible for a refundable payroll tax credit equal to 50% of the qualified wages paid to employees. This 50% credit will offset the employer’s share of Social Security taxes up to $10,000 per employee. 

An eligible employer is any employer carrying on a trade or business during 2020 and with respect to any calendar quarter for which (1) the business operations were partially or fully suspended due to the orders from a government authority limiting commerce, travel, or group meetings, or (2) the business experienced a significant decline in gross receipts defined as a calendar quarter’s gross receipts being less than 50% of the prior year’s calendar quarter’s gross receipts.

For employers with more than 100 full-time employees, qualified wages are wages paid when they are not providing services due to the COVID-19. 

For eligible employers with fewer than 100 full-time employees, all employee wages qualify for the credit.

How Can The Real Estate CPA Help?

– As a resource for how COVID-19 law and tax code changes

– Understanding the tax consequences of any legislation passed in response to the Coronavirus, including determining if you should amend previous years and tax planning going forward

– Help illustrate the sections of legislation that will have the greatest tax impact for real estate investors

– Create and facilitate group discussion with individuals in your situation with the Cash Flow Community Slack group


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