If I paid office rent with money from PPP loan, can I deduct that rent as an expense?

Section 276 of the Tax Relief Act expressly provides that “no deduction shall be denied, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income.

You are allowed to deduct the expense on your income tax return.

 

Under the CARES Act, businesses were not allowed to deduct expenses associated with their forgiven Payroll Protection Program (PPP) loans.

 

The COVID-19 Relief Package was signed very late in December of 2020.  Under the legislation, taxpayers whose PPP loans are forgiven are allowed deductions for otherwise deductible expenses paid with the proceeds of a PPP loan (tax basis and other attributes of the borrower’s assets will not be reduced as a result of the loan forgiveness).  Legislation was made retroactive to the CARES Act.

 

This Small Business Administration website outlines the long history of the deductibility of expenses.  Ultimately, Congress stepped in and clearly stated that business expenses paid with forgiven PPP loans are deductible. Section 276 of the bill states:

• For purposes of the Internal Revenue Code of 1986—
• The deductibility of business expenses paid with forgiven PPP loans is effective for subsequent PPP loans, as well as for business expenses paid with emergency Economic Injury Disaster Loan (EIDL) grants and targeted EIDL advances.