The CARES Act includes several components applicable to businesses which are detailed below.
Net operating losses
The Tax Cuts and Jobs Act (TCJA) made significant changes to the net operating loss (NOL) rules beginning with tax year 2018, including prohibiting the carryback of NOL’s, and allowing loss carryforwards to offset no more than 80% of current year income. The CARES Act made the following changes:
Limitation on losses for taxpayers other than corporations
TCJA created a new limitation on deduction of certain business losses in excess of $250,000 ($500,000 for married taxpayers filing jointly), for taxable years beginning after December 31, 2017 and before January 1, 2026. The CARES Act pushes the beginning effective date of this change to taxable years beginning after December 31, 2020.
Modification of credit for prior year corporate alternative minimum tax
TCJA created a methodology whereby corporations subject to alternative minimum tax (AMT) in taxable years prior to 2018 could recover this tax as a refundable tax credit over a maximum 4-year period, beginning in 2018. The CARES Act accelerates this tax credit so that the entire amount of prior AMT will now be recovered no later than the 2019 tax year. In addition, an election is now available to claim the entire credit in 2018.
Business interest limitations
TCJA significantly modified the deduction for business interest to an amount no greater than 30% of adjusted taxable income, plus some additional modifications. The CARES Act made the following changes:
Technical correction regarding qualified improvement property
As a result of a drafting error in TCJA, beginning in tax year 2018, qualified improvement property (the definition of which includes many types of leasehold improvements), was no longer eligible for bonus depreciation, and was required to be depreciated over 39 years. The CARES Act has corrected this drafting error so that qualified improvement property is now eligible for bonus depreciation. If a business chooses not to take bonus depreciation, qualified improvement property may now be depreciated over 15 years.
For a list of important CARES Act business provisions to consider, click here.
If you have questions, please contact a member of your DGC client service team or Stephen Minson, CPA, MST at 781-937-5120 / email@example.com for more information. You can also visit our coronavirus web page at dgccpa.com/coronavirus which is frequently updated with new articles and checklists to help you deal with the impact of the coronavirus on you and your business.
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