Florida: IRC Conformity Date and Decoupling Provisions Updates May Require Amended Returns to Be Filed
This alert was corrected on October 27, 2021 to indicate that Florida does not allow NOL carrybacks.
Florida enacted H.B. 7059 on June 29, 2021, which updates the state’s corporate income tax conformity with the federal Internal Revenue Code (IRC) in effect on January 1, 2021, and it decouples from certain federal tax provisions. On August 13, the Florida Department of Revenue issued revised TIP No. 21C01-01 (TIP), which discusses Florida’s corporate income tax adoption of the 2021 IRC, as well as several of the decoupling provisions present in Florida law. The TIP cautions that amended returns may be required for tax returns that were filed before the enactment of the IRC conformity bill.
IRC Conformity Legislation Update
H.B. 7059 amends the Florida tax code to retroactively adopt the IRC as amended and in effect on January 1, 2021. Based on that conformity date, Florida will follow the computation of federal taxable income, including changes made by the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Consolidated Appropriations Act, 2021. For example, Florida will piggyback the federal corporate income tax treatment of paycheck protection program loans, economic injury disaster loans and Small Business Administration loans. However, Florida decouples from key provisions in these acts.
Business Interest Expense Deduction
For tax years beginning after December 31, 2018, and before January 1, 2021, H.B. 7059 requires that taxpayers add back to federal taxable income the difference between the interest expense allowed under the CARES Act and the interest expense allowed under the TCJA. Florida conforms to the TCJA version of IRC section 163(j), which limits the deduction for business interest expense to the sum of business interest income, 30% of adjusted taxable income (ATI) and the taxpayer’s floor plan financing interest. However, for tax years 2019 and 2020, the CARES Act temporarily increased the interest expense limitation to 50% of ATI. Therefore, for tax years 2019 and 2020, Florida taxpayers must add back any interest expense deduction that exceeds the 30% of ATI limit. This mandatory addback may be carried forward indefinitely to future tax periods until the expense is fully deducted.
Qualified Improvement Property
For qualified improvement property (QIP) placed in service on or after January 1, 2018, Florida decouples from the accelerated federal deduction under IRC section 168(e)(6). H.B. 7059 decouples from the CARES Act amendment to IRC section 168(e)(6), which changed the depreciation recovery period for QIP from 39 years to 15 years for general depreciation and 20 years for alternative depreciation. Additionally, it requires Florida corporate income taxpayers to add back to federal taxable income 100% of a taxpayer’s depreciation deduction, irrespective of whether it is bonus or regular depreciation.
However, H.B. 7059 allows an annual subtraction from federal taxable income under IRC section 167(a) for depreciation that would have been allowed if the CARES Act was not enacted. Additionally, any taxpayer subject to the QIP addback can take this subtraction modification even if the QIP is no longer in service or sold.
Net Operating Losses (NOLs)
Florida does not allow NOLs to be carried back to prior taxable years. However, it allows NOL carryforwards as follows:
- Florida NOLs generated in taxable years beginning after December 31, 2017 may be carried forward indefinitely until used and never expire.
- Florida NOLs generated in taxable years beginning before January 1, 2021 may be carried forward and applied toward 100% of the Florida tentative apportioned adjusted federal income.
- Florida NOLs generated in taxable years beginning after December 31, 2020 may be carried forward and applied toward 80% of Florida tentative apportioned adjusted federal income.
Other IRC Decoupling Provisions
Bonus depreciation – For assets placed in service before January 1, 2027, Florida continues to decouple from bonus depreciation under IRC section 168(k). Taxpayers must add back 100% of the federal depreciation deduction and then may take the deduction ratably over a seven-year period.
Business meals deduction - For taxable years beginning after December 31, 2020, and before January 1, 2026, H.B. 7059 decouples from IRC section 274(n)(2) by not allowing the CAA’s temporary increase in business meal deductions from 50% of expenses to 100% of expenses. Florida corporate taxpayers, therefore, must add back to federal income expense amounts that exceeds the 50% limit.
IRC Conforming Provisions
For tax years 2020 and 2021, Florida conforms to the increase in the federal charitable deduction limitation from 10% to 25% of taxable income.
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