IRS: Expenses Paid with Forgiven PPP Loans are Not Tax Deductible

Codes and Standards
Published

The Internal Revenue Service on April 30 issued guidance that states that employers who received loans through the Paycheck Protection Program (PPP) will not be eligible for tax deductions on expenses if payment of those expenses funded by the loan results in the loan being forgiven.

Specifically, IRS Notice 2020-32 provides guidance regarding the deductibility for federal income tax purposes of certain otherwise deductible expenses incurred in a taxpayer’s trade or business when the taxpayer receives a loan pursuant to the PPP.

The notice clarifies that no deduction is allowed under the Internal Revenue Code for an expense that is otherwise deductible if the payment of the expense results in forgiveness of the loan.

In general, the tax rules for a business-related loan are:

  • Wages/health care/rent/utilities are a deductible expense
  • Debt forgiven is taxable income

For businesses with a PPP loan that is forgiven, these rules generally reverse themselves:

  • PPP debt forgiven is not taxable income
  • Wages/health care/rent/utilities paid via the forgiven debt are not

For PPP loans forgiven pursuant to the CARES Act, the IRS will disallow any otherwise allowable deduction under any provision of the tax code to the extent of the resulting PPP loan forgiveness (up to the aggregate amount forgiven). In the view of the IRS, this treatment prevents a double tax benefit.

NAHB is providing this information for general information only. This information does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind nor should it be construed as such. Before making any decision or taking any action on this information, you should consult a qualified professional adviser to whom you have provided all of the facts applicable to your particular situation or question.

Subscribe to NAHBNow

Log in or create account to subscribe to notifications of new posts.

Log in to subscribe

Latest from NAHBNow

Advocacy

Aug 01, 2025

Meet at Home with Your Members of Congress

NAHB members across the nation can build on the success of the June Legislative Conference by meeting with their lawmakers in their home districts in August to discuss key issues that affect the home building industry.

Sponsored Content

Jul 31, 2025

How Home Builders Beat the Labor Crunch with This Fast Financing Plan

Struggling to secure labor can force builders to make tough decisions: Do you delay a project? Sacrifice profits? Or turn down new opportunities? But smart builders don’t just react — they adapt their financing strategy to meet labor challenges head-on.

View all

Latest Economic News

Economics

Jul 31, 2025

Personal Income Rises 0.3% in June

Personal income increased by 0.3% in June, following a 0.4% dip in May, according to the latest data from the Bureau of Economic Analysis. The gains in personal income were largely driven by higher wages and social benefits.

Economics

Jul 31, 2025

Housing Share of GDP: Second Quarter 2025

Housing’s share of the economy registered 16.3% in the second quarter of 2025, according to the advance estimate of GDP produced by the Bureau of Economic Analysis. This reading is unchanged from a revised level of 16.3% in the first quarter and is the same as the share one year ago.

Economics

Jul 30, 2025

Fed Remains on Pause Again

At the conclusion of its July meeting, the Federal Reserve’s monetary policy committee once again held the federal funds rate constant at a top rate of 4.5%. However, two members of the committee dissented from the decision (Fed Board Governors Waller and Bowman), the largest number of dissenting votes since 1993.