FTB Update on Assembly Bill 80 (AB 80): Forgiven Loans

FTB added some information to its website today regarding AB 80 and forgiven loans, addressing income exclusion and business expense deductions.
 
AB 80 was enacted on April 29, 2021, to exclude any advance grant amount issued pursuant to the CARES Act or the Consolidated Appropriations Act of 2021 (CAA), and covered loan amounts forgiven pursuant to the CARES Act and the CAA.
 
Income
For California tax purposes, gross income does not include any covered loan amounts and advances from Economic Injury Disaster Loan (EIDL) Program forgiven under California’s conformity to the following federal laws:

• CAA
• CARES Act
• Paycheck Protection Program and Health Care Enhancement Act
• Paycheck Protection Program Flexibility Act of 2020

Expenses
The CAA allows deductions for eligible expenses paid for with covered loan amounts. California law conforms to these federal provisions with modifications. For California purposes, ineligible entities include a publicly-traded company or one that does not meet the 25 percent reduction from gross receipts requirements under Section 311 of the CAA. These ineligible taxpayers may not deduct expenses paid with amounts received from PPP loans under this provision. The exclusion does not apply to deductions for eligible expenses paid with amounts from EIDL loans.
 
What to do
For California purposes, taxpayers may file tax year 2020 amended returns to claim expenses made deductible under AB 80 that were not previously deductible.
For taxpayers who claim the deductions on their federal returns for the 2021 tax year, California will permit these taxpayers to carry the deductions through to their California 2021 returns as well (provided that the taxpayer did not claim the deduction in any other taxable year). Read the full article here.