PPP Expense Deductibility

The House of Representatives and the Senate both passed the Consolidated Appropriations Act of 2021 on December 21, 2020, and the President is expected to sign it into law.  While the main purpose of the Act is funding the federal government through the end of the government’s current fiscal year, it includes many tax-related provisions. 

The Act allows a deduction for expenses paid with PPP proceeds that are forgiven and not required to be repaid to the lender. 

The Act also indicates that, while the income from forgiveness of such loans is tax-free, this income increases the basis of ownership interests in pass-through entities.  (The basis of such ownership interests will then be decreased by the deduction of the expenses related to items paid with the PPP proceeds.) 

The PPP is discussed on pages 23 to 29 of the Tax Year 2020 M+O=CPE Individual Tax Year-End Workshop Reference Book.