AB 150 Timing of PTET Credit

[joshuabarksatlcs]

What is the timing for claiming the PTET Credit - based on the payment year, or the election year?

In other words, when the election is timely made (by 3/15/2022) for the 2021 PTE tax return, when is the credit available on the 1040

(a) for someone who paid the PTET in 2021; and

(b) for someone who paid the PTET in 2022 (before 3/15) ?

Still in the PTET maze.... 

[garman22 · Accepted solution]

In my state (illinois), not sure if that differs in other states,

a) if paid by 12/31, its deductible on 2021 and credit is available on 1040 state 

b) if elected and paid by 03-15-22, credit is available '21 but no federal deduction is available until 2022 as was paid in 2022. 

[IRonMaN]

Cash basis or accrual basis business?

[joshuabarksatlcs]

Cash basis

[IRonMaN]

Then I'll go along with garman.  I still find it hard to believe that garman is such a common name here that he is version number 22.

[abctax55]

@joshuabarksatlcs 

Cash OR accrual - had to be paid by 12/31/21 to get the deduction on the Federal return.  There are a few (smart) folks that think it *might* not be deductible until 2022 return as technically it isn't really a tax until the election is made - and that election can't be made until the filing of the return IN 2022.   

Spidell thinks it's deductible on the 2021 return IF paid by 12.31.21.  There's an IRS Notice (2020-75) that sorta/kinda addresses the issue, but it is not very clear (to folks who's brains can read/interpret that legalize much better than mine).  And IRS clarification isn't going to happen anytime soon.  

I had a few clients opt to pay by 12/31/21 to preserve the possibility of deducting it on the 2021 return - at worst it's a timing issue/cash flow issue.  

(edit - link added to just one of the many threads on the Spidell message board...)

https://www.caltax.com/forums/topic/ab-150-pmt-date-12-31-or-due-date-of-return/

[garman22]

I was not aware that there may be an issue on deductibility if paid by 12/31. that bears keeping an eye on. 

Thanks @abctax55 

[garman22]

Lol, I dont think there are 20+ but since I usually take #2, I just added another 2. 😁 😀

[IRonMaN]

I'm a little worried about your math skills.  If you add 2 to 2, you come up with 5, not 22. 😯

[joshuabarksatlcs]

All these times, I just thought the 2's were to memorialize his bathtub duckies, the same way I named my handle after the late Joshua, my mighty dog.  I don't bark at Lacerte.  Joshua does...  

[garman22]

hahahaha!!!

[abctax55]

@garman22 

I think it's only an issue with CA - as 'we' are new to this PET drill.   It's a new law, and not well-written per the 'experts'.

[joshuabarksatlcs]

If you add 2 to 2, you come up with 5, not 22. 

@IRonMaN NOT exactly related, but it reminds me of this:

A Roman soldier walked inside a restaurant.  The hostess asked, "How many in your party?"

Soldier raised two fingers (like how we signal victory) and said:

Five.

Okay, he actually said "Quinque", but Julius Caesar isn't coming to town and who would brush up his Latin?

[tax_investment_life]

Just more information on this.

With AB150, as of today (2.6.2022) the credit is severely limited by California Tentative Minimum Tax.  Because of this, many business did not want to make a full payment by 12.31.2021 and get partial credit on their CA tax return.   

California current has a fix in process for this (AB87) and their budget (see Economic Growth tab etc https://www.ebudget.ca.gov/budget/2022-23/#/BudgetSummary ).

This leave cash basis pass trough's in a bind:  there is still risk of TMT limitation, so those that held off on deciding on payment now may not be able to deduct in 2021 if they are cash basis.   

I'm not sure if we will get any IRS clarity on this, but the "safe" answer is the deduction is in the year paid for cash baiss tax payers.... and the "hopeful" answer is there will be some update allowing us to accrue this deduction for 2021 since California's system has been a mess.  cheers!   

[abctax55]

If PTET was not paid by 12/31/21 it will NOT be deductible in 2021, cash OR accrual basis.  There's debate whether it is deductible on 2021, or if it's a 'deposit'.  The IRS specific guidance is MIA; disclosure is suggested.

I have one client that his credit IS limited by TMT, but the disallowed amount is available to carryforward for 5 years. It isn't lost.  And we may not make the election for 2022 given the large carryover.   Having the entity pay the PTET by 12/31/21 gave him +/- $ 350,000 credit on his F 540.  And saved almost $ 200,000 on his Fed tax bill.

My point is - run the numbers, discuss with your client. Compute the cash flow.  One answer doesn't fit all.  

[tax_investment_life]

Thanks for the clarity!

some of my business are not sure on their future.... so the idea of losing a non refundable credit because of AMT/TMT limits can backfire on us.   

California has been more difficult than the IRS these past two tax season!