Illinois 2022 Budget Implementation Act Provisions
On June 17, 2021, Governor Pritzker signed the Fiscal Year 2022 Budget Implementation Act (ACT). The ACT contains numerous tax and business legislative changes with most geared towards increasing the revenue side of the budget. Notable tax law provisions include:
Decoupling from Bonus Depreciation:
Federal Law currently provides for 100% Bonus Depreciation deductions on purchases of qualifying fixed assets. Through 2020, Illinois law effectively conformed with the Federal 100% Bonus Deprecation rules, allowing the deduction to remain intact at the state level. The Act decouples from the 100% Bonus Depreciation regime, effective for tax years ending on or after December 31, 2021. For 2021 and future years, 100% Bonus Depreciation will be an addback for state purposes. Taxpayers will claim a subtraction for the deprecation that would have been allowed, had they elected out of 100% Bonus Deprecation at the Federal level.
Limits on Net Loss Deductions:
Illinois Net Loss Deductions (NLD) [Net Operating Loss equivalent] are normally carried forward up to 12 years with no limit on their annual utilization against future income within that carry forward window. The Act caps the annual utilization at $100,000 per year for tax years ending on or after December 31, 2021 and before December 31, 2024. Any year in which a taxpayer’s NLD is limited to $100,000 will not count towards the 12 year carry forward period for future NLD utilization. The cap only applies to C-Corporations.
Franchise Tax Repeal Freeze :
Prior law had implemented a phase-out of the Illinois franchise tax over a four-year period beginning in 2020, by phasing-in increasing levels of tax exemption. The franchise tax was scheduled for full repeal by the end of 2024. The Act freezes the phaseout plan indefinitely, but it does preserve the tax exemption level that was previously set for 2021. For 2021 and future years, the first $1,000 of franchise tax computed is exempt from tax.
Extension of Tax Credits:
The following credits otherwise set to expire were extended through 2026:
- Angel Investment Tax Credit
- River Edge Historic Tax Credit
- Affordable Housing Donation Tax Credit
- Live Theatre Production Tax Credit
The Illinois legislature has passed a bill that provided a state and local tax deduction work around for owners of pass-through business entities. The legislation aims to alleviate the Federal annual $10,000 state tax deduction cap, by allowing pass-through entities to make an election to absorb its partner’s/shareholder’s Illinois income tax burden. This legislation has not been signed by Governor Pritzker at the time of this writing. We will issue additional guidance if the bill becomes law.
At Brown CPA Group, we are closely monitoring continuing developments and interpretations concerning this legislation . Please reach out to your Brown CPA Group professional team to discus how we can assist your business needs.
Contributors: Barry Burchel, Tax Director; Victor Cortese, Senior Staff Accountant