PPP loan forgiveness, deductibility among the changes
Governor Kemp recently signed House Bill 265, which allows Georgia taxpayers to implement federal tax acts that were put in place on or before January 1, 2021 on their Georgia state tax returns. There are, however, some exceptions. Provisions related to the CARES ACT figured prominently in the annual Internal Revenue Code update.
This adherence to federal law is related to the computation of Federal Adjusted Gross Income or Federal Taxable Income for corporations.
PPP Loans Significantly Affected
Georgia businesses can now treat PPP-related tax issues the same way the federal government does. That is, you’re now allowed to deduct expenses paid with PPP funds on your state return. In addition, PPP loan forgiveness is not a taxable event. This applies to all years.
In fact, the state has adopted almost all provisions of the CARES Act, beginning with taxable years that began on or after January 1, 2019 (including the 2020 year). This does not include any of the 2019 or 2020 changes that were enacted for the taxable years beginning on or after January 1, 2018 and before January 1, 2019. So if you have to file an amended federal return for that period, you’re not required to submit an amended Georgia state return.
I.R.C. Section 179 deduction
Georgia has also adopted the increased I.R.C. Section 179 deduction of $1,040,000 and the $2,590,000 phaseout. But the state has not adopted the Section 179 deduction for certain real property (I.R.C. Sections 179(d)(1)(B)(ii)).
No Revised Net Operating Losses
Not every element of the CARES Act has been incorporated into Georgia state tax law. For example, the state did not adopt the revised net operating loss provisions and the modification to the Code Section 461(l) limitation. This has impact in several ways.
- If you had losses in taxable years ending after December 31, 2017, there is no carryback and unlimited carryforward of net operating losses. There is, however, a two-year carryback for farming losses. There is also a two-year carryback and a 20-year carryforward for certain insurance company net operating losses.
- If you had losses in taxable years beginning on or after January 1, 2018, there is an 80 percent limitation (based on Georgia taxable net income) on the use of net operating losses. This limitation does not apply to certain insurance company net operating losses.
- The I.R.C. Section 461(l) adjustment (limitation on losses for noncorporate taxpayers) is required as it was before the CARES Act.
A Technical Correction in the Act
The CARES Act changed the depreciable life of qualified improvement property (QIP) from 39 years to 15 years. So on the federal level, qualified improvement property is now eligible for 100 percent bonus depreciation. The state of Georgia has adopted this correction as it relates to the 15-year life for taxable years beginning on or after January 1, 2019, but it has not adopted bonus depreciation.
We’re well-versed on these changes to Georgia state tax law and on the other provisions included in HB 265. We’d be happy to help you understand how the new law affects your current tax planning and preparation. Contact us, and we’ll schedule a time to deal with these and any other tax-related issues you might have.