The Consolidated Appropriations Act of 2021 that was signed in late December by President Trump combined the long-awaited stimulus bill with the omnibus spending bill funding the federal government. Much of the interest in the bill is on individual stimulus payments and the expansion of the Paycheck Protection Program. The bill also has far-reaching tax consequences, including in the world of specialty tax.
One of the longest-awaited portions of the bill involves how businesses are to treat expenses paid for with forgiven PPP funds. Under the CARES Act, Congress established that any amount forgiven under the PPP would not generate taxable income. The Treasury interpreted this to mean forgiveness created a class of “exempt income.” This meant that while no income was created from the forgiveness, a company could not deduct expenses paid for with PPP funds. The IRS detailed this position in
The Consolidated Appropriations Act of 2021 fixes this issue. Under the new law, it is confirmed that “no amount shall be included in the gross income of the eligible recipient by reason of forgiveness,” and “no deduction shall be denied, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income.” The detail seems to fix the issue and means that the forgiven amount from a PPP loan will have no effect on income or tax credits associated with wages paid. This is great news for taxpayers who have been waiting for guidance.
Outside of the stimulus, the bill includes extensions to many expiring tax positions such as the 179D Energy-Efficient Commercial Buildings Deduction. Created in 2005 as part of the Energy Policy Act of 2005, the 179D deduction incentivizes the construction of energy-efficient buildings. Section 179D provides a deduction of up to $1.80 per square foot for the construction of energy-efficient buildings. Back when this originally passed, it was seen as a temporary measure but has become a permanently temporary provision, being extended every few years. This made the provision less viable as businesses could not budget for the deduction when designing new properties. As part of this new bill, the 179D deduction has been permanently extended and, with the extension, Congress has required that the property meet more stringent criteria to claim the deduction. So, while business owners can now rely on the deduction long term, fewer properties may qualify.
Finally, the new law includes extensions for many expiring provisions such as a one-year extension to the 45L Energy-Efficient Home Credit. 45L provides a $2,000 per unit credit for the production of energy-efficient homes. This credit was slated to expire at the end of 2020 but received a one-year extension through the end of 2021. Credits will assist homebuilders and apartment developers in 2021 as they rebound from the COVID-19 pandemic and economic crisis.
While these are just a handful of provisions in the 5,593-page bill, the provisions demonstrate the extent of the reach of this bill. It will be critical as businesses move into 2021 that they dig into the details of this expansive bill. For many businesses, these tax provisions could mean as much, if not more, than some of the stimulus programs included.
