SBA loans

[Schlof]

The SBA made loan payments for 6 months for a client.  Everything I read online is dated to 10/2020 and says those payment made on their behalf will be taxable income.  Has IRS come out since then to say this is not taxable income?

[sjrcpa]

The bill passed in late December made this tax free.

[Schlof]

I know PPP loans, and EIDL grants are tax free.  But I have not read anything that gave the tax free status to the 6 months of the SBA micro loan payments made on behalf of the loan holders?

[qbteachmt]

For Fed reporting: The SBA payments are tax free; the Interest still is deductible.

"Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, the SBA is authorized to pay six months of principal, interest, and fees on covered SBA loans. The Consolidated Appropriations Act, 2021, P.L. 116-260, provides that these payments are not includible in the borrower’s gross income. In addition, Notice 2021-6, issued Jan. 19, waived Form 1099-MISC reporting requirements for these payments."

https://www.journalofaccountancy.com/news/2021/feb/irs-corrected-information-return-form-1099-misc.h...

[sjrcpa]

Where've you been since December 27?

[Dave Kropp]

So the principal portion is tax exempt and the interest portion is deductible?

[qbteachmt]

"So the principal portion is tax exempt"

Principal is never a tax deduction. The principal is paying down the debt balance.

"and the interest portion is deductible?"

Interest can be defined as "the cost of borrowing" and if the purpose of the loan (the use of the funds borrowed) meets a deductible purpose for this entity as defined by the IRS, then the interest is deductible per the IRS.

Otherwise, that's just too vague of a question. Sorry.

[ljr]

unless the client continued to make the payments on the loan (bank gave my client that option) as well as the SBA making the 6 payments then there should be no interest to deduct. The SBA paid the principal only and it is not taxable income.