The IRS issued a notice late last week to clarify the PPP loan forgiveness and the deductibility of the expenses that are taken into consideration while in your PPP covered period. The notice states that although the loan itself is not considered taxable income, the expenses paid with the proceeds of the PPP loan that are subsequently forgiven are not deductible. This did not come as a surprise to us, and does not change our opinion on the benefits of the program.
The notice did however bring some added clarifications to the program. The notice clarifies that interest eligible to be spent with PPP loan money does not just include interest on mortgages, but also “interest on any other debt obligations.” This is great news for those of you who were struggling to fill up your 25% bucket of eligible non-payroll expenses. This does not clarify whether or not interest on other debt obligations is a forgivable expense however, just that it is allowable.
In order for interest on non-mortgage loans to be paid with PPP money they must obviously be paid during your PPP covered period. If you have stopped making any payments on practice/equipment loans you will need to contact your bank/servicer and ask to make an interest only payment so that all amounts get categorized to interest if you would like to use your loan proceeds in this way. If you are continuing to make payments as scheduled, make sure to keep track of the interest portion of those note payments, as the interest portion may be eligible for forgiveness if the SBA provides this clarification later.
As another planning point, some of you received an EIDL grant and also received PPP funds. This is perfectly acceptable, however, make sure to note that the amount of the EIDL grant will reduce the amount of PPP forgiveness available to you. If you received an EIDL grant, you will be left with that amount at least as unforgivable from you PPP loan and will either need to pay that amount back in a lump sum or over the repayment period of 18 months at 1%.
We are glad to see that many of you who did not get PPP approval in the first round are now getting approved. If you have not talked with your advisor about the usage of you PPP loan, please call the office to get some time on the schedule.