In June 2020, the Colorado Department of Revenue (DOR) released emergency and proposed regulations that provided a new interpretation of Section 39-22-103, providing that only those federal amendments enacted prior to the end of the tax year to which they apply are applicable for Colorado state tax purposes. This interpretation meant that Colorado tax law would not apply the following retroactive CARES Act provisions to tax years beginning before Jan. 1, 2020:
In late June 2020, the Colorado legislature passed House Bill (HB) 20-1420, which generally codified the DOR’s treatment of the first three items for 2018 through 2020. HB 20-1420 is silent on the treatment of QIP, which means the Tax Cuts and Jobs Act of 2017 QIP error would apply to pre-March 27, 2020, tax years.
On Jan. 21, 2021, HB 21-1002 was signed into law to allow Colorado taxpayers to benefit from the CARES Act changes. The bill provides a deduction beginning with the 2021 tax year related to the CARES Act changes originally disallowed by the DOR and HB 20-1420. Generally, the deduction is equal to the excess of the Colorado income as reported for 2018 through 2020 tax years over the amount that would have been reported had the CARES Act retroactive benefits been allowed.
The deduction must be claimed on a taxpayer’s return filed for tax years beginning on or after Jan. 1, 2021, but before Jan. 1, 2022. The deduction allowed in any given year is limited, and any remainder is carried forward to the following year. The deduction limits are as follows:
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