PPP Loan Forgiveness Updates

If your business was the recipient of loan funds through the Paycheck Protection Program, the deadline for submitting your application to your lender for PPP loan forgiveness has been extended, according to the US Small Business Association (SBA). Originally expected to be October 31st, your deadline to apply will instead be the maturity date of the loan. Your documentation should specify that date but will be either two or five years from the origination date of the loan. You may need to make payments during this two- or five-year term.

Following is an updated statement from the SBA:

Borrowers may submit a loan forgiveness application any time before the maturity date of the loan, which is either two or five years from loan origination. However, if a borrower does not apply for loan forgiveness within 10 months after the last day of the borrower’s loan forgiveness covered period, loan payments are no longer deferred and the borrower must begin making payments on the loan. For example, a borrower whose covered period ends on October 30, 2020 has until August 30, 2021 to apply for forgiveness before loan repayment begins.

As a reminder, the following are qualifying expenses for which PPP funds can be used:

  • Payroll costs
  • Certain rent payments on leases that were in place prior to February 15, 2020.  Not all rental payments will qualify.
  • Mortgage interest
  • Utility payments including gas, electricity, water, telephone, internet access and transportation
  • The costs to maintain your group health insurance plan
  • Interest payments on other business debt that was in place prior to February 15, 2020
  • Costs to refinance an SBA EIDL loan made between January 31, 2020 and April 3, 2020

All qualifying expenditures must be thoroughly accounted for and documented.

How Are Income Taxes Affected?

  • To provide some cash flow relief, some retroactive changes will allow amending 2018 returns to claim refunds for loss carrybacks of up to five years, increased loss limitation on pass-through businesses, accelerated depreciation for qualifying real property, and refunds of AMT credits.
  • Starting with 2019, increased deductions of business interest are allowed.
  • The amount of the loan that is forgiven is not taxable.
  • BUT expenses covered by the PPP loan that would typically be deductible, are not.

Be sure to discuss and verify the tax implications with your CPA or tax preparer. I suggest use have your CPA do a tax projection this year to fully realize the implications of the forgiveness.

Please refer to the SBA’s FAQ sheet of October 13, 2020 for more details and be sure to verify all information directly with your lender. Please feel free to contact me if I can be of help with your forgiveness application, accounting for use of the funds, or with other questions.

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