The CARES Act included a number of changes to income tax provisions as well as corrections to the 2017 Tax Cuts and Jobs Act (TCJA).
- Retroactive changes that apply for federal income tax purposes:
- Net Operating Losses This provision now allows taxpayers to carry back Net Operating Losses for 5 years (originating in taxable years beginning after December 31, 2017.) Prior to this change, businesses were required to carry forward any net operating losses incurred.
- Bonus Depreciation Correction The TCJA defined certain improvements to building interiors made after the building is "placed in service" as "Qualified Improvement Property". This property was to be eligible for bonus depreciation (including section 179 expensing) but there was an error in its application under TCJA. The error has been corrected retroactively so that these additions may qualify for additional depreciation for tax years after December 31, 2017.
- AMT Credit Limits Limits on applying refundable AMT credits have been increased from 50% for 2018 and 2019 to 100% for those years. Eligible taxpayers can elect to apply the full amount to 2018 and apply for a refund. Any available AMT adjustments are to have special handling within 90 days of filing according to the act.
If applicable, amended federal income tax returns may need to be filed for 2018 and 2019 in order to take advantage of these retroactive changes. Consult your tax advisor to see if filing an amended federal income tax return(s) will offer you a substantial benefit or tax refund.
2. Other provisions
- Interest expense deduction increased to 50%.
- Employer refundable payroll tax credits for firms experiencing a 50% reduction in gross receipts due to Covid when compared to the same quarter last year. Up to $10,000 per employee.
- Delay in remitting employer social security taxes due on payroll - 50% payable 12/31/2021 and balance due 12/31/2022.