Minnesota Finally Conforms to Several Federal Tax Law Changes

• • • Minnesota conforms to the Federal treatment of Paycheck Protection Program (PPP) loans and forgiveness
    • Minnesota follows the Federal exclusion of up to $10,200 of unemployment compensation for certain taxpayers
    • Minnesota follows the Federal exclusion from income of EIDL advance grants from the SBA as well as SBA loan subsidy payments
    • Minnesota follows the Federal exclusion from income for cancellation of qualified principal residence indebtedness
    • Minnesota conforms to the Federal treatment of COVID-related retirement account distributions and recontributions
    • Minnesota follows the Federal extension of the energy efficient commercial building deduction under Code § 179D
    • Minnesota follows the Federal exclusion from income for emergency financial aid grants for students

Minnesota also enacted a new election that allows certain pass-through entities (S corporations, LLCs, partnerships) to pay tax at the entity level, thereby escaping the $10,000 limit on individual state tax deductions on the Federal return.  Pass-through owners will claim a credit on their individual Minnesota tax returns for their share of the entity tax paid.  This provision is effective in 2021. While Minnesota conformed on the key issues listed above, the Legislature did not give taxpayers everything they wanted.  For example, the new legislation did not adopt the CARES Act’s “fix” of the Federal depreciation treatment for Qualified Improvement Property.  As a result, these additions are depreciable over 39 years for Minnesota purposes while they are depreciable over 15 years for Federal purposes, and therefore eligible for Federal bonus depreciation.