Modifications of the Tax Cuts and Jobs Act of 2017 in the CARES Act
I'm just going to summarize what was explained in more detail here -
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act cleared the House vote and was signed into law. As the most expensive legislation ever passed, the CARES Act includes tax relief and incentives designed to help both businesses and individuals impacted by the COVID-19 pandemic. In addition, the CARES Act modifies certain provisions that were previously amended by the Tax Cuts and Jobs Act (TCJA). These changes include:
- Modifications for Net Operating Losses (NOLs) - The TCJA eliminated the prior two-year carryback of NOLs but provided an indefinite NOL carryforward period. The CARES Act now allows for a five-year carryback of NOLs arising in the 2018, 2019, and 2020 tax years. Businesses may amend or modify tax returns for years dating back to 2013 to take advantage of the expanded carryback.
- The CARES Act modified certain loss limitations to permit sole proprietors and pass-through entities to use NOLs previously disallowed. In addition, NOLs incurred before January 1, 2021 can be used to fully offset income, without the 80% taxable income limitation under the TCJA. Changes to the NOL utilization rules allow for greater cash flow and liquidity.
- Modification of Credits for Prior Year Minimum Tax Liability of Corporations - The TCJA repealed the alternative minimum tax (AMT) for corporations on tax years after 2017 but allowed for a partial refundable credit for any unused minimum tax credits through 2021. The CARES Act accelerates the recovery of the AMT credits, making them fully refundable in tax years 2018 and 2019.
- Modification of Limitation on Business Interest - The TCJA modified the deduction limit for business interest for tax years after 2017 from 50% to 30% of adjusted taxable income. The CARES Act temporarily returns the applicable limitation to 50% of adjusted taxable income for 2019 and 2020. Taxpayers may also elect to use the 2019 adjusted taxable income in calculating the limitation for 2020. The election may be advantageous due to the expected decrease in revenues from 2019 for many businesses.
- Technical Amendments Regarding Qualified Improvement Property - Due to an error in drafting, the TCJA increased the period for deducting the cost of qualified improvement property, such as qualified leasehold, restaurant, and retail property improvements. As a result of the error known as the “retail glitch,” qualified improvement property depreciates over a 39-year period and does not qualify for bonus depreciation. The CARES Act includes the highly anticipated technical correction by defining qualified improvement property as 15-year property to be expensed immediately.