By Robert Jackson, CPA
December 15, 2020
As we approach the end of the year, we wanted to remind you that non-PPP loan payments made by the SBA pursuant to Section 1112 of the CARES Act are taxable. Borrowers should expect a Form 1099-MISC early in 2021.
Section 1112 of the CARES Act required the SBA to make principal and interest payments (as well as an associated fees) for six (6) months on existing 7(a) loans (other than PPP loans), as well as 504 loans and Microloans. As noted in the previous sentence, Section 1112 does not apply to PPP loans, which instead were passed under Section 1102 of the CARES Act.
Borrowers should expect the 1099-MISC to be issued by the servicer of the loan, which will show the payments made by the SBA in “other income” on Form 1099-MISC. In addition, because all payments made for the borrower during the six (6) months are taxable (i.e. principal, interest and fees), the borrower is deemed to pay the interest expense on the loan during that period. Thus, all interest paid by the SBA during the 6 months should also be included in the borrower’s Form 1098, and reported as interest expense on their tax return.
Apple Growth Partners’ published material provides general coverage of its subject area and is presented to the reader for educational purposes based on the most current regulatory information available at the time it was written. All communications, whether written or oral should be reaffirmed prior to the submission of any application. All information in this published material and on our website is provided in good faith; however, we make no representation or warranty of any kind, express or implied, regarding the accuracy, adequacy, validity, reliability, availability, compliance with any law (federal, state or local) or professional standard or completeness of any information. We assume no responsibility to any recipient of this material to correct or update its contents for any reason, including changes in any law or professional standard. It is not intended to be audit, tax, accounting, advisory, consulting or investment advice. The information in this article is also not a substitute for legal advice and may not be suitable in a particular situation. Consult your attorney for legal advice.
Our articles, other published materials and website occasionally contain links to other web pages. Links to organizations and government agencies are provided as a convenience to our readers. The firm does not endorse and is not responsible for any third-party content that may be accessed from its website and does not recommend or endorse the use of any third-party’s services. The links are to be accessed at the user’s own risk, and the authors of this website make no representations or warranties about the content of these links.