New York 2020-2021 Budget Bill Does Not Adopt the CARES Act Increased Interest Deduction Under IRC Section 163(j)

As reported by Ryan in a previous article, on March 27, 2020, President Trump signed into law a relief package in response to the economic crisis created by the coronavirus pandemic—the Coronavirus Aid, Relief, and Economic Security Act (HR 748), also known as the CARES Act. Some of the highlights of the CARES Act are the Federal Employee Retention Credit, Net Operating Loss (NOL) and Alternative Minimum Tax (AMT) provisions, and various small and large business relief provisions.

New York’s recently enacted 2020-2021 budget legislation decouples from the increase in the federal business interest deduction for the 2019 and 2020 tax years pursuant to Internal Revenue Code (IRC) Section 163(j)(10)(A)(i) under the CARES Act. New York law requires rolling conformity with the IRC. Any changes from the currently enacted provisions must be specifically enacted by the New York Legislature. As amended, the federal business interest deduction calculation under IRC Section 163(j)(1)(B) allows for 50% (previously 30%) of a taxpayer’s adjusted taxable income for the 2019 and 2020 tax years. However, New York S.7508-B/A. 9508-B specifically rejects this change, thus retaining 30% of a taxpayer’s adjusted taxable income for purposes of the business interest deduction calculation for both the state and New York City taxes.

With a shortfall of state and local tax revenue as a result of COVID-19, New York’s approach is an attempt to lessen additional budgetary impacts for one of the states most severely (if not the most severely) impacted by the COVID-19 pandemic to date.

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Mark L. Nachbar
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