On December 27, 2020, President Trump signed the Consolidated Appropriations Act, 2021 (“Act”) into law. The Act provides the following relief to small businesses:
 

• Existing Paycheck Protection Program (“PPP”) loans will not be taxable when forgiven;
• Tax deductions may be taken as normal for business expenses that were paid using a PPP loan that is or will be forgiven:
  • Eligible expenses (business expenses incurred for certain payroll expenses, mortgage interest expenses, rent payments, and utility payments);
  • Personal protection equipment and adaptive investments to comply with COIVD-19 related federal, state, and local health guidelines;
  • Payments for software, cloud computing, and other human resources and accounting needs;
  • Costs related to property damage due to public disturbances that occurred during 2020 that are not covered by insurance;
  • Expenses to a supplier pursuant to a contract in effect prior to taking out the PPP loan that are essential to the operations of the business;   
• Money has been allocated to PPP;
• Businesses with no more than 300 employees that have had a 25% reduction in gross revenue in any quarter of 2020 relative to the same 2019 quarter will be eligible for a second PPP loan;
• Section 501(c)(6) nonprofits are now eligible for PPP loans;
• The 30-year alternative depreciation system (“ADS”) recovery period for residential rental housing will apply to all residential rental property, regardless of when the property was placed in service by the taxpayer; and
• The business meals deduction is increased to 100% for 2021-2022.

This is not an exhaustive summary of the Act. If you have any questions, please feel free to contact Kemp Smith’s Tax Department at 915-533-4424.

¹This overrules the November 18, 2020 IRS Guidance to the contrary, which was the subject of a prior e-mail from our Tax Department.
²A second PPP loan will only be forgiven if 60% of the proceeds is spent on payroll costs.
³A real property trade or business (“RPTOB”) may elect out of the new Tax Cuts and Jobs Act limitation on the deductibility of business interest. In making the election, the RPTOB is subject to longer recovery periods that apply under the ADS. The Tax Cuts and Jobs Act reduced the ADS recovery period for residential rental property from 40 years to 30 years.