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More Paycheck Protection Program Loan guidance from SBA

The Small Business Administration (SBA) has issued updated Paycheck Protection Program (PPP) loan forgiveness guidelines for owner employees, home office expenses, subleased space and related party rent expenses.

Here is a URL for the update–IFR–Treatment-Owners-Forgiveness-Certain-Nonpayroll-Costs.pdf

The update includes two items that will help many businesses.

  1. When a business elects to use 24 weeks of expenses to qualify for debt forgiveness under the Paycheck Protection Flexibility Act, only eight weeks of payroll-related expenses for owner-employees of the business qualify for loan forgiveness. The updated guidance clarifies that payroll-related expenses of individuals who own less than 5% of a C corporation or an S corporation aren’t subject to the eight-week limitation.
  2. Home office expenses that are deductible on Schedule C such as mortgage interest, utilities and insurance can qualify for loan forgiveness. The expenses qualifying for loan forgiveness are computed based on the 2019 federal income tax return or, for a new business, the expected deductions on the 2020 federal income tax return.

If a borrower subleases or shares space for rented property, the rent expense for debt forgiveness is reduced for rent received. For example, if the borrower pays $10,000 of rent and receives $2,500 for subleased space, $7,500 qualifies for debt forgiveness.

Rent paid to a related party for business use real estate qualifies for debt forgiveness, limited to the mortgage interest paid for the property. Both the lease and mortgage must have been in place before February 15, 2020 to qualify. Mortgage interest payments to a related party don’t qualify for debt forgiveness. The borrower must provide its lender with documents to substantiate the payments.

Tax and financial advice from the Silicon Valley expert.