August 24, 2020
Owner-employees with < 5% interest
Owner-employees of an S or C corporation with less than a 5% interest are not subject to the owner-employee compensation rule.
Eligibility of amounts attributable to business operation of tenant or sub-tenant or household expenses eligible for forgiveness?
No. Nonpayroll costs may not include any amounts attributable to the business operations of a tenant, or sub-tenant or household expenses if a home- based business.
Examples –
- PPP borrower rents space for $10,000 per month but receives $2,500 in sub-lease income. Only $7,500 is eligible for forgiveness.
- PPP borrower has mortgage on its office building and leases 25% of the space to another business. Only 75% of the mortgage interest is eligible for forgiveness.
- PPP borrower shares space with another business. Borrower must prorate the rent and utilities in the same manner as the tax filings.
- PPP borrower works out of his or her home. Borrower may include only the share of covered expenses that were deductible of the 2019 tax filings.
Are rent payments to a related party eligible for loan forgiveness?
Yes, but on two conditions:
- Loan forgiveness requested for rent or lease paid to related party cannot be more than the amount of mortgage interest owed on the property during the Covered Period.
- Lease and mortgage must have been entered into prior to February 15, 2020.
Key definition – Any ownership in common between the business and the property owner is a related party for these purposes.
Documentation required – Borrower must provide lender with mortgage interest documentation.
- Mortgage interest payments to a related party are not eligible for forgiveness.
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