The CARES Act, which was enacted on March 27, 2020, has several components that may benefit your business. In discussing the new legislation, we previously addressed two employment-related tax provisions from the CARES Act: the employee retention credit and the delay of payment of employer payroll taxes. Additional tax provisions in the Act modify previous legislation in order to further support businesses as they navigate the financial impacts of the COVID-19 pandemic.
The CARES Act makes multiple modifications to certain provisions of the Tax Cuts and Jobs Act (TCJA) which was enacted in late 2017. Under the TCJA, the ability to use net operating losses (NOLs) to offset income had been limited to 80% of current taxable income beginning with losses generated in 2018 or later. The CARES Act now allows taxpayers to use NOLs from tax years 2018-2020 to offset 100% of income for the years to which they are applied. The rules under TCJA, which had eliminated the ability to carry back NOLs beginning in 2018, have also been altered under this new legislation to allow NOLs generated in 2018-2020 to be carried back to the previous five years. This allows businesses to potentially receive a refund of taxes paid in earlier years.
Two other provisions of the TCJA have been modified. The deduction for excess business losses, which had been capped at $250,000, now has no limit for tax years 2018-2020. Also, the limit on deductibility of business interest expense, which had been capped at 30% of adjusted taxable income, has been increased to 50% of adjusted gross income for tax years 2018-2020. There are special rules in place for partnerships with regard to the interest deduction.
Due to the elimination of the corporate alternative minimum tax (AMT) beginning in 2018 under the TCJA, many corporations have minimum tax credits that carried forward, which were permitted to be credited against the tax with certain limitations from 2018-2020 and then fully allowed in 2021. Under the CARES Act, corporations are now allowed to claim 100% of AMT credits in 2019 or on an amended 2018 return.
The CARES Act also rectified a technical error in the TCJA. The classification of all qualified improvement property changes to 15-year property, which permits bonus depreciation on these specific assets. Taxpayers may benefit by amending 2018 and 2019 returns to claim the additional depreciation deduction.
Your Hantzmon Wiebel team is here to answer any questions you may have regarding these changes.
For a complete overview of how the Act impacts individuals, non-profits and businesses be sure to check out the full series using the COVID-19 resource tab on our website.
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