On March 27, 2020, President Trump signed into law the $2 trillion bipartisan Coronavirus Aid, Relief, and Economic Security (CARES) Act (H.R. 748), which includes many federal income tax relief provisions for business taxpayers and their owners. FML’s Justin Wilcox, Lisa Willauer and Bill Claffey explain:
- Modifications for Net Operating Losses.
- Net operating loss arising in 2018-2020 may be carried back up to 5 prior tax years.
- A technical correction permits a corporation with a fiscal year ending in 2018 (“2017 tax year”) to carry back a net operating loss generated in such year up to 2 prior tax years.
- The 80%-of-taxable-income limit on the use of post-2017 net operating loss carryforwards has been removed temporarily for 2018-2020 (the limit will return in 2021).
- The non-corporate taxpayer annual loss limitation of $250,000 ($500,000 filing jointly), adjusted for inflation each year, has been removed temporarily for 2018-2020 (the limit will return for tax years 2021 through 2025).
- Modifications for Business Interest Expense Deduction Limitations
- Large business taxpayers are subject to the Section 163(j) limitation, which caps their interest deduction to a percentage of tax basis earnings before interest, income taxes, depreciation & amortization (“EBITDA”, although state income tax deductions are permitted) plus business interest income. The EBITDA percentage limitation is increased from 30% to 50% for 2019-2020 (unless a taxpayer elects out).
- However, for partnerships, the 50% limit only applies in 2020, and partners will need to make special allocations pertaining to 2019.
- In addition, taxpayers may choose to use 2019 income for determining the EBITDA component of the 163(j) limitation for 2020.
- Other Miscellaneous Changes
- Qualified improvement property placed in service in 2018 and forward is eligible for 100% bonus depreciation and subject to a 15-year recovery period; the change is retroactive to January 1, 2018.
- Corporate alternative minimum tax credit carryovers are fully refundable in 2019 (or may be elected to be refunded sooner).
- Individual cash charitable contribution deductions in 2020 are not capped by adjusted gross income (the 50% limit returns in 2021).
- Corporate cash charitable contribution limitations in 2020 are capped at 25% of taxable income (the 10% limit returns in 2021).
FML’s Justin Wilcox, Lisa Willauer and Bill Claffey have explored potential opportunities within the less publicized CARES Act business tax reliefs that can be claimed very soon through refund claims or amended tax returns. Click Here to read more.