The Massachusetts Department of Revenue issued a Working Draft Technical Information Release (TIR)1 relating to the federal Coronavirus Aid, Relief, and Economic Security Act (CARES Act)2. Massachusetts announced that it would adopt the changes the CARES Act made to Internal Revenue Code (IRC) § 163(j). Section 163(j) limited the deduction of net business interest expense to 30% of adjusted taxable income. The CARES Act allows taxpayers to increase this limitation to 50% of adjusted taxable income for 2019 and 2020 and allows taxpayers to make an election to use 2019 adjusted taxable income to calculate the limitation for 2020. If adopted as drafted, the TIR would allow taxpayers to take advantage of both provisions.
The draft TIR also adopts the CARES Act provision that reclassifies qualified improvement property’s depreciable life from 39 years to 15 years for property placed in service after December 31, 2017. The draft TIR does note that Massachusetts continues to decouple from the bonus depreciation rules allowed under IRC § 168(k). The CARES Act also increased the deduction for charitable contributions. Instead of the standard limitation of 10% of taxable income, the CARES Act allows a deduction for cash contributions up to 25% of the taxpayer’s taxable income less the amount of all other charitable contributions allowed. Under the provisions, Massachusetts would adopt this change for 2020.
Regarding small business loan forgiveness provided by the CARES Act, Massachusetts only adopts the current version of the IRC for corporate excise and adopts the version in effect on January 1, 2005 for personal income tax. As a result, only corporate borrowers can exclude the amount forgiven under § 1106 of the CARES Act from Massachusetts gross income. Any deduction allowed under the Paycheck Protection Program of the Small Business Act as outlined in Internal Revenue Service (IRS) Notice 2020-32 would also be deductible in Massachusetts.
The draft TIR states that CARES Act changes to the federal net operating loss deduction will not impact Massachusetts, as the state does not conform to IRC § 172.
1 Working Draft TIR 20-XX: Massachusetts Tax Implications of Selected Provisions of the Federal CARES ACT.
2 Public Law No: 116-136 (March 27, 2020): Coronavirus Aid, Relief, and Economic Security Act.
TECHNICAL INFORMATION CONTACTS:
Mark L. Nachbar
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