New Bill Outlines Covid Relief and Economic Stimulus Provisions
Congress passed the Appropriations bill, which included the latest Covid relief and economic stimulus provisions. The bill fulfilled a long-awaited promise by Congress to clarify the treatment of the Payroll Protection Plan’s forgiveness. Since the passage of the PPP, one of the main draws was the chance for companies to have the loan forgiven by the SBA. Many companies anticipated applying for and receiving forgiveness. However, shortly after the original loan application opened, the Department of Treasury issued guidance stating that if a company’s loan was forgiven, that company could not take a deduction resulting from any expenses paid with the loan proceeds. Congressional members and leadership have been vocal about allowing the deductions. Still, they have been unable to pass a law requiring it until now.
This bill clarifies Congress’s intent. The bill prevents the proceeds from being included in gross income, and therefore taxable. It also prevents the Treasury from denying deductions because the forgiven proceeds were used. This is true for the current PPP loans and future programs of a similar nature.
Research Credit Impact
While this clarification benefits most businesses applying for loan forgiveness, it is especially important for those who are also claiming the federal research credit. One result of the treasury’s guidance making expenses, including wages, paid with by a forgiven loan non-deductible, is that the same expenses would not be eligible for the research credit. This would reduce the benefit of the credit and created complications as companies juggled the administration of the loan application and credit documentation. With the clarification, companies can have the loan forgiven and still deduct their expenses, or better yet, claim a research credit for those wages. Now, companies can focus on conducting their business and researching their next technological innovation.
The bill brought many welcomed changes to the 179D deduction. The first and most significant change was to make the deduction permanent. With 179D’s newfound permanence in the tax code, several other changes were introduced to keep it updated as time passes. The first of these updates make the deduction inflation-adjusted by increasing the maximum amount of the deduction allowed each year based on the cost-of-living adjustment. Additionally, the ASHRAE standards are no longer fixed in time but updated every two years to the most recent publication by the American Society of Heating, Refrigerating, and Air Conditioning Engineers and the Illuminating Engineering Society of North America. Finally, the California Nonresidential Alternative Calculation Method is updated every two years to reflect the latest published manual. The updated baseline standards encourage building owners and designers to focus on improving the energy efficiency of buildings to qualify for the deduction. We anticipate some challenges that may arise in qualifying for the full deduction and a reduction in the deduction amount from Interim lighting qualification. However, the availability of tax deductions for partially qualifying systems (Lighting, HVAC, and Envelope) makes this a valuable tax incentive.
Not to be forgotten, the Energy Efficient Homes Credit (45L) received a last-minute one-year extension. With the new bill’s passage, 45L is extended until December 31, 2021. This extension allows taxpayers to take advantage of the credit for another year while creating more energy-efficient housing options.