By: Shuchita Lotlikar

On August 24, 2020, the United States Small Business Administration (SBA) provided additional guidelines on Paycheck Protection Program (PPP) loan forgiveness under its interim final rule. PPP loans are forgivable if businesses use them on eligible business expenses and retain a certain portion of their employees during the covered loan period.

Compensation to Owner-Employees

PPP loan forgiveness for owner-employees of a corporation is capped at 2.5 months of their salary for the year 2019.

However, owner-employee compensation limits do not apply to individuals that hold less than a 5% stake in a C corporation or S corporation.

PPP Loan Forgiveness for Non-Payroll Costs

SBA has clarified that PPP loan forgiveness is not available for expenses related to:

• A tenant or a sub-tenant of the borrower
• Household expenses for home-based businesses

Loan forgiveness is available for eligible home office and shared office expenses that are prorated based on the business’s 2019 tax returns. New businesses should prorate these expenses based on expected 2020 tax filings.

Mortgage interest is not eligible for forgiveness if it is paid to a related party. However, rent or leases paid to a related party may be eligible for loan forgiveness if both of the following conditions are met:

• The rent amount is less than or equal to the mortgage interest owed on the property during the covered period. The mortgage interest amount must be attributable to the business’s office space. Borrowers will need to document the mortgage interest amount.
• The lease and mortgage were established before February 15, 2020.

Conclusion

Please contact your Chugh CPAs, LLP tax professional for questions related to PPP loan forgiveness or financing for your business. You can also send us an email at info@chugh.com