Do You Get to Deduct PPP Loan Interest You Did Not Pay

When a PPP loan is forgiven, the SBA transmits a payment to the bank of the loan principal plus accrued interest.  The Consolidated Appropriations Act (CAA) indicates that PPP loan forgiveness is non-taxable and all related deductions to the PPP loan forgiveness is allowed.

Does this mean that the interest paid by the SBA is a deductible item to the farmer (or other taxpayers).  We are not sure.  The loan forgiveness application only lists the loan amount.  Once this is forgiven the SBA sends the interest to the bank.  The farmer never pays the interest, however, the interest paid by the SBA might be deductible, BUT WE DON’T KNOW.  We need guidance from the IRS on this.  We lean toward it not being deductible since the taxpayer did not pay it and the CAA only refers to forgiveness, not payments.

The CAA also added a provision that indicates the “payments” that the SBA makes on behalf of taxpayers is also treated as being non-taxable and all expenses related to those payments will be allowed.  These payments include principal (which is non-deductible) and interest (which is deductible).  In this case since the CAA refers to “payments” it is likely that the interest is fully deductible.  However, WE DON’T KNOW for sure.  We need guidance from the IRS.

Part of the delay in guidance is the transition from the Trump administration to the Biden administration.  

In regards to interest on the PPP loan, it is likely a very small amount.  For example, assume you have a $100,000 loan for six months.  In this case, the interest is about $500.

When we get guidance from the IRS, we will let you know.