By Jason A. Rubin, Esq.

The COVID-19 pandemic had a widespread impact on business owners across all industries over the past few years. However, while many of the government programs enacted during the pandemic such as the Paycheck Protection Program and the Main Street Lending Program provided some form of relief for business owners in many sectors, a large segment of owners of commercial real estate were unable to realize the most beneficial aspects of these programs. A requirement of these assistance programs required that a certain portion of the funds be used towards payroll, rent and other enumerated operating expenses. Many large institutional real estate investors qualified for those programs, and the funds they received as a result were instrumental in their ability to maintain operations through a challenging real estate leasing market. However, for smaller commercial real estate owners who may not have met the required thresholds for these overhead expenses, the government programs enacted to counteract the devastating impact of COVID-19 were either inapplicable or not impactful. Despite this, smaller commercial real estate owners provided rent forgiveness both voluntarily as a proactive measure to assist their tenants maintain occupancy, and as a necessity when their tenants were faced with significant rent arrearages that if required to be repaid would potentially jeopardize the tenants’ ability to maintain a viable ongoing concern.

In an effort to partially offset the losses of commercial real estate owners who provided rent forgiveness to their commercial tenants, State Assemblymember Aura Dunn (R) from New Jersey Assembly District 25 (Morris and Somerset Counties) sponsored and introduced Bill A50 on January 1, 2022. The bill is currently being considered by the Assembly Commerce and Economic Development Committee.

The bill if passed would allow commercial real estate owners to deduct from their Corporation Business Tax or Gross Income Tax liability the value of any qualifying rent forgiveness that the taxpayer provided to an eligible business. In order to qualify as an “Eligible Business” the rent forgiveness must have been extended to a commercial, business, trade, wholesaling, retailing or other profit-making or nonprofit organization that leases all or part of a commercial property in New Jersey.    

The amount of the “Qualifying Rent Forgiveness” permitted to be taken as a deduction is limited to 33.3 percent or $5,000.00, whichever is less, of the total amount of the rent forgiveness provided for each month, up to three (3) months (or an equivalent amount for a commercial lease that is not payable to the taxpayer on a monthly basis).

In total, the taxpayer is allowed to deduct from the taxpayer’s income up to $15,000.00 cumulative rent forgiveness provided by the taxpayer to each eligible business that is a commercial property tenant of the taxpayer; provided however the deduction is limited to $15,000.00 per commercial unit (i.e. – in the case of a turnover of the unit the taxpayer would not be permitted to deduct $15,000.00 for more than one tenant who occupied the unit during this period). In addition, the deduction will only apply to rent forgiven during the period commencing with the issuance of Executive Order No. 103 of 2020 in which Governor Murphy declared a state of emergency relating to the COVID pandemic on March 9, 2020 through September 30, 2020.

The deduction would not apply to rent forgiveness provided by the taxpayer to any business related to the taxpayer that is deemed part of the same “controlled group” or the same “affiliated group” as the taxpayer. The bill defines “Affiliated Group” as an affiliated group as defined in the federal Internal Revenue Code 26 U.S.C. s.1504. A “Controlled Group” means a controlled group of corporations as defined in the federal Internal Revenue Code 26 U.S.C. s. 1563.

The bill has been certified by the Office of Legislative Services for a fiscal note from the Legislative Budget Office to provide an estimate of the financial impact of the proposed legislation on the state budget. Once the fiscal note has been completed, the Assembly Commerce and Economic Development Committee will complete its deliberations and determine whether to progress the bill to the next step in the legislative process.

For more information, contact Jason A. Rubin at jar@spsk.com or at (973) 540-7306.