March 26, 2020 / North America
Late last night, the Senate unanimously passed the Phase 3 COVID-19 Bill (“Final Bill”). The Final Bill is 880 pages long and is largely based on the last Senate bill that was circulated last week. The Final Bill now moves to the House where it is expected to be passed tomorrow. The following highlights many of the tax provisions in the Final Bill.
NOL Carrybacks and Excess Business Losses
The Final Bill modifies the rules governing net operating losses (NOLs) for 2018, 2019, and 2020 taxable years by:
The Final Bill also relaxes the rules governing excess business losses of noncorporate taxpayers for taxable years beginning after December 31, 2017 but before December 31, 2020 so that pass-through entities and sole proprietors are not limited in their use of trade-or-business losses to offset their nonbusiness income.
AMT Refundable Credit
The Final Bill provides that the AMT minimum tax credit is 50% refundable in 2018 and 50% refundable in 2019. The Original Proposal provided that the entire amount of the credit was refundable in 2018, requiring taxpayers to file an amended 2018 tax return to claim the refund. The change to spread the refund period over 2018 and 2019 makes it so taxpayers do not need to file an amended 2018 return in order to obtain the refund.
However, taxpayers can elect to claim the full amount of the refundable credit in 2018. If such an election is made, then Revised Bill provides that such claim for refund is not subject to review by the Joint Committee of Taxation prior to issuance of the refund.
Modifications to Limitation on Interest Expense Deduction
As part of TCJA, Congress limited a taxpayer’s deduction for business interest expense to the sum of: (1) the taxpayer’s business interest income, (2) 30% of the taxpayer’s adjusted taxable income (i.e., taxable income computed with certain adjustments) and (3) floor plan financing interest (section 163(j) limitation). The Final Bill proposes to modify the section 163(j) limitation for taxpayers other than partnerships as follows:
For partnerships, the Final Bill provides:
Retail Glitch Correction
As part of TCJA, the ability to depreciate an improvement to an interior portion of a building which is nonresidential real property, made after building was first placed in service (i.e., qualified improvement property or QIPs), was modified so that it had a useful life of 40 years and was therefore ineligible for the additional first year depreciation deduction (section 168(k)). The Final Bill corrects this so that QIP is now eligible for the section 168(k) deduction…
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