The CARES Act and the subsequent COVID 19 relief bill that was passed December 27th brought about a lot of changes to federal tax systems. Let’s take a quick look at some of those and how they might impact your state tax returns. There are a number of small items, but there are 3 big ones that could make a material impact to your state tax situation.
- Tax Exempt debt forgiveness of PPP loans
- Tax Exempt debt forgiveness of EIDL Advances
- Tax Exempt debt forgiveness from the SBA paying principal and interest on a 7(a) loan
Some states write their state tax code to automatically conform or to start with whatever the current federal rules are. If you are in one of those states, consider yourself lucky. Some states will write their state tax code to say that their calculations start with the federal tax rules as of a certain date like 12/31/2018. Minnesota is one of those states where they are routinely pushing forward that date by passing conformity bills. So the 2020 changes to the federal law will not automatically carry through to Minnesota income tax returns. That tax exempt income for federal purposes won’t be tax exempt for MN because that part of the federal law didn’t exist the last time Minnesota updated and conformed their tax laws. Every one or two years Minnesota addresses this conformity and typically some items of federal changes are adopted, but others are not.
It’s too early to say whether or not Minnesota will conform to the tax-exempt debt forgiveness items. I would certainly hope that the debt forgiveness provisions for the federal relief programs will be adopted and conformed when Minnesota next looks at a tax conformity bill, but you should stay tuned for now. Contact any member of Our Leadership Team for questions or more information.