Congress recently passed Coronavirus relief law
On March 27, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The law provides significant relief and opportunities. Regulatory guidance on implementing the law and addressing questions that arise will be highly anticipated in the days ahead. Following are highlights of provisions affecting businesses and employers.
Corporate and business tax
Net operating loss (NOL) carrybacks.
The CARES Act restores NOL carrybacks that were eliminated by 2017 tax reform known as the Tax Cuts and Jobs Act or TCJA for businesses and individuals. The new carryback provisions allow for a five-year carryback of NOLs incurred by corporations and individuals in the 2018, 2019, and 2020 tax years. The act also provides for a two-year NOL carryback for losses incurred in fiscal years beginning in 2017 and ending in 2018. The act temporarily removes the 80% limitation on the amount of income that can be offset by post-2017 NOLS through the 2020 tax year. It also provides that an NOL carryback will not affect the 2017 IRC Section 965 transition tax amount.
Refundable alternative minimum tax (AMT) credits.
The TCJA repealed the corporate AMT and provided that credits for prior year minimum tax would be refunded over a four-year period from 2018 through 2021. The CARES Act accelerates the refund of these credits under one of two options:
- The default option gives the balance of the refundable credit to taxpayers with their 2019 tax return.
- An election is available to allow taxpayers to claim a refund of the entire credit in 2018
Business interest expense limitation.
The TCJA added a limitation on the deductibility of business interest. Interest expense deductions were capped at 30% of adjusted taxable income (ATI). The CARES Act increases the deduction to 50% of ATI for the 2019 and 2020 tax years. The act also allows taxpayers to make an election to use their 2019 ATI in the computation of the 2020 interest expense limitation. This increased deduction and election will benefit taxpayers that have a significant decline in 2020 income.
Qualified improvement property.
In the TCJA, Congress intended to treat certain real estate improvements called qualified improvement property (QIP) as having a 15-year life that was eligible for 100% bonus depreciation. Due to an apparent drafting error, the statute did not make QIP eligible for bonus depreciation. The CARES Act restores bonus depreciation for QIP retroactively to enactment of the TCJA.