Ala. Offers Deduction For Fed. Relief Loans, Tax Agency Says

Alabama individuals can deduct expenses paid with federal loans offered as relief for the novel coronavirus pandemic if they expect those loans to be forgiven, even if they have not formally submitted loan forgiveness applications, the state tax agency said.

In updated guidance issued Wednesday regarding Republican Gov. Kay Ivey's emergency proclamation, the state Department of Revenue said individuals can deduct expenses paid with federal loans under the Coronavirus Aid, Relief and Economic Security Act 's Paycheck Protection Program from their state tax liability for 2020.

The department said a taxpayer can deduct expenses paid by loans that have either been forgiven or that a taxpayer "reasonably expects" to be forgiven, even if a loan forgiveness application is not submitted by the end of the 2020 tax year.

The department said it would also exclude other forms of relief and payments from the calculation of individual income tax liability for 2020, including economic impact payments and COVID-19-related relief funds.

Employers should likewise exclude certain amounts — such as qualifying disaster relief payments — from reported wages, the department said.

The agency also outlined the state tax treatment of various charges and payments for financial institutions and corporate taxpayers, including loan forgiveness and grants. 

--Editing by Neil Cohen.

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