In two of our previous blog posts, we detailed the Payroll Protection Program and the stimulus checks. In this part, we will cover other tax specific provisions of the CARES Act.
NET OPERATING LOSSES
- Losses from 2018, 2019 and 2020, will be permitted to be carried back for up to five years. As was previously the case, a taxpayer will be permitted to forgo the carryback, and instead carry the loss forward.
- Losses carried to 2019 and 2020 will be permitted to offset 100% of taxable income, as opposed to 80% under the TCJA.
QUALIFIED IMPROVEMENT PROPERTY
QIPs are now allowed to be depreciated over 15 years, instead of 39 years. This change is retroactive to January 1, 2018, and taxpayers are allowed to file an amended return in 2018 to receive the accelerated depreciation.
RETIREMENT DISTRIBUTIONS
- Taxpayers who have been diagnosed with SARS-CoV-2 or COVID-19, or have been quarantined, furloughed, laid off, had hours greatly reduced or unable to work due to lack of child care can take up to $100,000 in distributions from their retirement account, without being subject to the 10% tax on early distributions. These distributions can be taken up to December 31, 2020. The distributions may be repaid in three years. The income can be spread out on your tax return over three years.
- Required minimum distributions are suspended until 2021.
- Minimum required contributions for single employer plans are delayed until 2021.
CHARITABLE CONTRIBUTIONS
The bill created a $300 above-the-line deduction for qualified charitable contributions up to $300 for 2020.
HEALTH PLANS
- High-deductible health plans are now allowed to cover telehealth and remote care services without charging a deductible.
- can now reimburse over-the-counter medications and menstrual care products. Check with your human resources department or insurance agent to determine if your account will reimburse these items.
EXCESS LOSS LIMITATIONS
The CARES Act repeals the Sec. 461(I) excess loss limitation, which disallowed excess business losses of noncorporate taxpayers, exceeding $250,000-single or $500,000-married filing jointly.
INTEREST LIMITATIONS
Sec. 163(j) increases the adjusted taxable income percentage from 30% to 50% for tax years 2019 and 2020. Taxpayers can elect to use 2019 income in place of 2020.
PAYROLL TAXES
Payment of 50% of employer payroll taxes and self-employment taxes are delayed to December 31, 2021, with the other 50% due by December 31, 2022.
EMPLOYER PAYMENT OF STUDENT LOANS
$5,250 of student loan payments made by an employer will be tax free to the student. The exclusion applies for payments made between March 27, 2020-January 1, 2021. Typically, loan payments on behalf of the student are taxable.