On December 21, 2020, both houses of Congress passed a bill known as The Consolidated Appropriations Act of 2021. The Act, which went into effect six days later on December 27th, included a highly anticipated stimulus package to aid individuals and businesses during the Coronavirus pandemic. This package has wide-reaching implications for filing taxes as both an individual and as a business. Below are a few ways the bill may impact your 2020 and 2021 returns. 

Expenses Paid with PPP Loans

We’ve written in detail about IRS stimulus tax breaks in the COVID-19 economic recovery bill. In that article, we mentioned that expenses paid by Paycheck Protection Program (PPP) loans were recently deemed to be tax deductible. Previously, under the CARES Act, these expenditures were unable to be deducted, although Accounting Today explains how they did not generate taxable income, as loan forgiveness was thought to create an exempt income category. The IRS doubled down on this ruling in Notice 2020-32, which was published in August. 

Luckily for many small business owners, this decision has now been overturned under the Consolidated Appropriations Act of 2021 which states that “no amount shall be included in the gross income of the eligible recipient by reason of forgiveness,” and “no deduction shall be denied, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income.” This means that the amount of income used to calculate R&D and Work Opportunity tax credits will not be lowered, but deductions can still be taken for qualified business expenses even if they were paid with PPP funds.

Energy Efficient Buildings

For business owners or prospective homebuyers planning to build structures in 2021, there are also several credits and deductions of which to be aware. The Act also extends several specialty tax provisions that were set to expire in the near future. Among these is the 179-D Energy Efficient Commercial Buildings Deduction, which allows a deduction of up to $1.80 per square foot for the construction of energy-efficient buildings. Business owners can now rely on this position long-term but should be aware of the strict criteria that a building must pass in order to be considered eligible. For more information on the requirements to qualify, you can visit the energy.gov website article on the topic here.

The 45-L Energy-Efficient Home Credit also received a one-year extension. Through the end of 2021, energy efficient homes that are built are eligible for a $2,000 tax credit. This provision is expected to aid homebuyers and apartment builders who plan to construct new buildings in the next year.

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