On March 27, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and President Trump signed it into law. The provisions of the CARES Act largely focus on providing prompt liquidity to businesses through access to capital from the Small Business Association (“SBA”), as well as easing of tax provisions that may be immediately challenging the cash flows of businesses of all sizes.
Below are some of the highlights of the CARES Act
- Enhanced Net Operating Losses (“NOLs”) Opportunities – The Act largely rolls back many of the net operating loss limitations that were put in place by the Tax Cuts and Jobs Act of 2017 (“TCJA”). Specifically, the Act suspends the limitation providing that NOLs can only offset 80% of taxable income and reverts to previous guidance allowing for 100% offset. Additionally, it reinstates past provisions allowing for the carryback of NOLs originating in tax years 2018, 2019, or 2020 to the previous five tax years (previously existing guidance for carryback only allowed for two-year carryback). Similarly, the bill removes limitations introduced by the TCJA on individuals ability to utilize business losses. These provisions could provide immediate opportunities for cash for both individual taxpayers and businesses.
- Qualified Improvement Property – The much-maligned drafting error from the TCJA that prevented the use of accelerated depreciation on qualified improvements to building property is being corrected in this Act. The language of the Act provides for the correction to apply as though it was originally enacted in 2017. Additional guidance is needed, but this should allow taxpayers to claim accelerated depreciation on 2019 returns currently in process and should allow for taxpayers to quickly claim benefits that were missed out on for tax year 2018.
- Tax Credit/Rebates – The Act provides for tax credit/rebates to be paid to taxpayers “as rapidly as possible.” The amounts are $1,200 per taxpayer and $2,400 in the case of a joint return. Additionally, there is credit available for $500 per qualifying child. Rebates are reduced for taxpayers with adjusted gross income in excess of $150,000 (married filing joint), $112,500 (head of household), and $75,000 (for all others).
- SBA Loan Assistance– The Act provides a new avenue for liquidity through loans available through the SBA for covering rent, utilities, payroll, salary, PTO, sick leave and severance of employees. Payments on these loans are to be deferred for at least six months. Additionally, subject to limitations, borrowers on these loans may be allowed to be permanently forgiven of repayment of portions of the loans. The forgiven amount is not taxable income. These loans are generally available to companies and nonprofits of less than 500 employees.
- Payroll Tax Holiday – The Act provides for the payment of the employer portions of 2020 payroll taxes to be deferred over a period of two years. The first 50% of the deferred amount will be due December 31, 2021, and the remaining portion of the deferred tax is to be due on December 31, 2022.
- Interest Expense Limitations – The Act eases limitations of the TCJA that reduced the deductibility of interest expense to 30% of adjusted taxable income. The Act increases the applicable percentage of this limitation to 50%. This change does not impact partnership tax filings for the tax year 2019.
As this continues to evolve we encourage you to reach out to your LBMC Tax Advisor with particular questions on what this means to you and your business. You can also keep up with COVID-19 here.
Thank you as always for your support and trust in LBMC.