CARES Act Sec. 1102 provides that a recipient of a PPP loan may use the loan proceeds to pay payroll costs, certain employee benefits relating to healthcare, interest on mortgage obligations, rent, utilities, and interest on any other existing debt obligations. If a PPP loan recipient uses their PPP loan to pay those costs, they can have their loan forgiven in an amount equal to those costs. PPP loan forgiveness doesn’t give rise to taxable income and the Code generally doesn’t allow a taxpayer to deduct expenses that are paid with tax exempt income.
COVIDTRA clarifies taxpayers whose PPP loans are forgiven are allowed deductions for otherwise deductible expenses paid with the proceeds of a PPP loan, and that the tax basis and other attributes of the borrower’s assets will not be reduced as a result of the loan forgiveness. (CARES Act section 1102 as clarified by COVIDTRA Sec. 276)
This provision is effective as of the date of enactment of the CARES Act.
AS of December 21, 2020, more details of recent COVID-19 tax related developments: https://rules.house.gov/sites/democrats.rules.house.gov/files/BILLS-116HR133SA-RCP-116-68.pdf
Other points of interests:
Business Meals Fully Deductible in 2021 and 2022
Employee Retention Tax Credit and Paid Sick/Family Leave Credits
Extension of Certain Deferred Payroll Taxes
We hope you found this short article about recent tax clarifications to the PPP loan forgiveness program helpful. For more information, talk to your tax advisor to see what else you can or should do to protect yourself and take full advantage of the unique opportunities provided by PPP loans. If you have additional questions or need expert tax or family office advice that’s refreshingly objective (we never sell investments), please contact us at Info@GROCO.com or visit www.GROCO.com. Unfortunately, we no longer give advice to other tax professionals gratis.