The President signed the COVID-19 Relief Act Sunday night. Echoing a previous post, a lot of uncertainty has been resolved. However, all may not be good in Mudville.
The deductibility of Paycheck Protection Program (PPP) loan expenses is generally seen as a positive result. However, there is one catch.
If you are a shareholder in an S-Corporation or a member or partner in an LLC or partnership and you do not have basis (i.e., amounts at risk), the loss may not be deductible. Why? Because your PPP loan has not been forgiven in 2020, but will most likely be forgiven in 2021, which creates a mismatch of positive and negative basis adjustments.
The end result will be non-deductibility of your loss, which will be carried forward to 2021 when your loan is actually forgiven. If you have enough basis, this will not be an issue for you and you can rest easy.
C-Corporations have no issue as it will create a Net Operating Loss (NOL) for future or carryback use.
Magone & Company clients who are concerned about deductibility should call us at (973) 301-2300 to discuss.