Apple Growth Partners

Reminder: Section 1112 Payments are Taxable

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.

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