CARES Act Tax Law Changes & Colorado Impact
Summary
A Colorado income tax guidance publication, revised April 2023, on how the CARES Act and the Consolidated Appropriations Act, 2021 affect Colorado taxable income. It explains that a court decision, Anschutz v. Department of Revenue, 2022 COA 132, found Rule 39-22-103(5.3) incorrect, so earlier guidance that retroactive federal changes did not apply should be disregarded and federal taxable income on a Colorado return should match the federal return. Taxpayers may need to file amended returns, including the Amended Colorado Individual Income Tax Return (DR 0104X). The publication treats individuals and C corporations separately and covers net operating loss carrybacks, required addbacks for tax year 2020 under House Bill 20-1420, and a subtraction limited to the lesser of Colorado taxable income or $300,000, with a $150,000 limit for tax years 2022 through 2025.
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Full text
CARES Act Tax Law Changes & Colorado Impact
This guidance document replaces the Department’s Federal taxable income
previously-issued guidance regarding the impact of
recent federal legislation on Colorado income tax. The Colorado income tax is based on federal taxable income
prior guidance explained that, as a consequence of Rule as determined pursuant to the Internal Revenue Code,
39-22-103(5.3), certain retroactive provisions of the as amended.2 For any tax year, including tax years
Coronavirus Aid, Relief and Economic Security Act ending either before or after the enactment of the
(CARES Act) and the Consolidated Appropriations Act, CARES Act and CAA, a taxpayer’s federal taxable income
2021 (CAA), did not affect a taxpayer’s Colorado income for Colorado income tax purposes is the same as their
tax liability. federal taxable income for federal income tax purposes
for that tax year.3
A recent court decision determined that Rule 39-22-
103(5.3) was incorrect and that retroactive changes in The Department’s prior guidance advised that federal
federal law can affect a taxpayer’s Colorado taxable changes made by the CARES Act (enacted March 27,
income.1 In light of this ruling, the Department expects 2020) and the CAA (enacted December 27, 2020) for tax
to repeal Rule 39-22-103(5.3). The rule should be years ending prior to their enactment did not apply for
disregarded in the meantime. This publication explains Colorado income tax purposes. As a result, the
changes resulting from the court decision invalidating Department directed taxpayers not to amend their
Rule 39-22-103(5.3), as well as additions and previously filed Colorado returns for these years and,
subtractions related to the CARES Act which remain in where necessary, to adjust the federal taxable income
effect. reported on their Colorado return pursuant to federal
law as existed prior to the enactment of the CARES Act
This publication is designed to provide taxpayers with
and CAA. In general, taxpayers were advised to compute
general guidance regarding Colorado income tax
federal taxable income by applying the law in effect
requirements. Additional information can be found in
immediately prior to the CARES Act and the CAA and to
the Colorado’s statutes, regulations, forms and
report that amount on line 1 of the Colorado income tax
guidance. Nothing in this publication modifies or is
return.
intended to modify the requirements of Colorado’s
statutes and regulations. Taxpayers should consult their In light of the court decision invalidating Rule 39-22-
tax advisors for guidance regarding specific situations. 103(5.3), the prior guidance should be disregarded.
Now, for any tax year, the federal taxable income
As discussed in this publication, taxpayers may need to
reported on a taxpayer’s Colorado income tax return
file amended Colorado income tax returns to correct
should match the federal taxable income reported on
their federal taxable income, additions, or subtractions
their federal return for that year, or as subsequently
previously reported on their Colorado returns. Forms and
amended or adjusted by the IRS, if applicable.
instructions are available online at
Tax.Colorado.gov/individual-income-tax-forms and
Tax.Colorado.gov/business-income-tax-forms.
1 Anschutz v. Department of Revenue, 2022 COA 132, 524 P.3d return, federal taxable income for Colorado income tax
1203. purposes is determined with respect to only the C corporations
2 Sections 39-22-103(5.3), -104(1.7), and -304(1), C.R.S. that are included in such combined, consolidated, or
combined-consolidated Colorado return.
3 In the case of an affiliated group of C corporations filing a
combined, consolidated, or combined-consolidated Colorado
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CARES Act Tax Law Changes & Colorado Impact
If a taxpayer is unsure if the federal taxable income As discussed in greater detail in the following sections,
reported on their Colorado return matches their federal individuals must file an Amended Colorado Individual
taxable income reflected in IRS records, they can Income Tax Return (DR 0104X) to make any necessary
request records from both the IRS and the Department corrections to their previously filed Colorado returns.
for comparison. Individuals can request an IRS Record of Any amended return filed by a taxpayer must be
Account online at IRS.gov/individuals/get-transcript. completed in full, including all applicable forms and
Other taxpayers can request an IRS Record of Account by attachments. Forms and instructions are available online
filing IRS Form 4506-T, available online at at Tax.Colorado.gov/individual-income-tax-forms.
www.irs.gov/forms-pubs/about-form-4506-t. Individuals may also file amended returns electronically
Information about a taxpayer’s federal taxable income online at Colorado.gov/RevenueOnline. In general, any
currently reflected in Department records can be amended return claiming a refund must be filed within
obtained online at Colorado.gov/RevenueOnline. four years of the due date of the original return,
including extensions, but please see the following
Because different state and federal rules apply to section for information about the statute of limitations
individuals (as well as estates and trusts) and C relating to net operating loss carrybacks.
corporations, this publication addresses individuals
(along with estates and trusts) and C corporations
Net operating loss carrybacks
separately.
The CARES Act allowed individuals to carry back net
operating losses arising in tax years beginning after
Individuals4
December 31, 2017, and before January 1, 2021, to the
five tax years preceding the year of the loss. 5 Prior
The following sections discuss certain provisions of the
Department guidance advised that the provisions of the
CARES Act and CAA, their impact on Colorado individual
CARES Act authorizing individuals to carry back net
income tax, related addbacks required for tax year 2020,
operating losses did not apply for Colorado income tax
and the associated subtraction allowed for tax year
purposes for tax years ending prior to March 27, 2020.
2021. For clarity, and because nearly all individuals file
The Department’s prior guidance regarding net
their Colorado income tax returns on a calendar year
operating loss carrybacks allowed by the CARES Act for
basis, parts of the discussion of individual income tax in
individuals should be disregarded.
this publication refers to calendar tax years (e.g. “tax
years 2018 and 2019”). Please see the footnotes for If an individual carries back a federal net operating loss,
additional information about the application of the such carryback will apply for Colorado income tax
guidance in this publication to individuals whose tax year purposes. The individual must file an Amended Colorado
is not a calendar year. Individual Income Tax Return (DR 0104X) for the tax year
to which the loss was carried to report the individual’s
federal taxable income after the net operating loss
deduction.
4 Department guidance on amending returns to claim the American Rescue Plan Act is available at
deduction for unemployment compensation allowed by the Tax.Colorado.gov/2020-unemployment-compensation-exclusion.
5 CARES Act, Pub. L. 116-136, section 2303(b).
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CARES Act Tax Law Changes & Colorado Impact
In general, any claim for refund or credit of a net on their Colorado return, or amended their federal
operating loss carryback must be filed within four years return under the CARES Act or CAA without similarly
of the due date, including extensions, for the return for amending their Colorado return, that individual must
the tax year in which the net operating loss arose.6 Prior now amend their Colorado return to report their correct
Department guidance indicated that, under certain federal taxable income on line 1.8
circumstances, an individual who carried back a net
operating loss for federal income tax purposes could Limitations under the Tax Cuts and Jobs Act
carry that loss forward for Colorado income tax purposes
In general, the CARES Act modified or suspended the
to a tax year ending before March 27, 2020. That prior
following limitations established by the Tax Cuts and
guidance should be disregarded. An individual’s net
Jobs Act of 2017 (Public Law 115-97):
operating losses are carried back or forward for Colorado
income tax purposes in the same manner that they are
➢ Net operating loss deduction limitation;9
carried back or forward for federal income tax purposes.
➢ Business interest expense limitation;10 and
Tax years 2018 and 2019
➢ Excess loss limitation.11
The CARES Act and CAA include several provisions,
discussed briefly below, that applied retroactively to tax Prior Department guidance stated that these retroactive
years 2018 and 20197 and generally had the effect of CARES Act changes did not apply for Colorado income tax
reducing an individual’s federal taxable income. In purposes for tax years ending prior to March 27, 2020.
general, taxpayers were advised to compute federal The Department’s prior guidance regarding these
taxable income by applying the law in effect retroactive changes should be disregarded and
immediately prior to the CARES Act and the CAA and to individuals must file amended Colorado returns, if
report that amount on line 1 of the Colorado income tax necessary, to correct their federal taxable income to
return. match their federal taxable income determined for
federal income tax purpose. Please see also the section
As noted above, that guidance should be disregarded. An later in this publication regarding the calculation of the
individual’s federal taxable income for Colorado income Colorado subtraction allowed for tax year 2021 under
tax purposes is now the same as their federal taxable House Bill 21-1002.
income for federal income tax purposes, even if the
individual’s federal taxable income was affected by
retroactive provisions of the CARES Act or CAA. If, in
accordance with prior Department guidance, an
individual reported a different federal taxable income
6 Section 39-21-108(1), C.R.S., and 26 U.S.C. § 6511(d)(2). 8 If instead these adjustments to federal taxable income were
7 The information in this section applies generally to tax years reported as additions to or subtractions from federal taxable
income, those additions and subtractions should be amended.
that ended prior to the enactment of the CARES Act (on March
9 CARES Act, Pub. L. No. 116-136, section 2303(a).
27, 2020) and the CAA (on December 27, 2020) and were
affected by provisions of the CARES Act or CAA. Different 10 CARES Act, Pub. L. 116-136, section 2306.
provisions of the CARES Act and CAA applied to different tax
years, but, with the exception of net operating loss carrybacks 11 CARES Act, Pub. L. 116-136, section 2304.
discussed earlier in this publication, the provisions of the
CARES Act and CAA discussed in this publication generally did
not apply to tax years commencing prior to January 1, 2018.
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CARES Act Tax Law Changes & Colorado Impact
Qualified improvement property Additionally, prior Department guidance stated that the
differing recovery periods for Colorado and federal tax
The CARES Act made retroactive amendments to the Tax purposes would result in higher adjusted basis for the
Cuts and Jobs Act of 2017 (Public Law 115-97) regarding property for Colorado purposes and a possible Colorado
depreciation allowed for qualified improvement subtraction under section 39-22-104(4)(b), C.R.S., upon
property (“QIP”).12 Prior Department guidance stated the disposition of the property. That prior guidance
that these retroactive amendments did not apply for
should be disregarded. This property has the same
Colorado income tax purposes for tax years ending prior
adjusted basis for Colorado tax purposes as it has for
to March 27, 2020, and the depreciation for QIP for these
federal tax purposes. If an individual claimed a Colorado
years must be determined under the Internal Revenue
subtraction based on the Department’s prior guidance,
Code as it existed prior to the CARES Act. The
the individual must amend their Colorado income tax
Department’s prior guidance regarding these retroactive
return to eliminate the subtraction claimed.
changes should be disregarded and individuals must file
amended Colorado returns, if necessary, to correct their
PPP loans and emergency EIDL grants
federal taxable income to match their federal taxable
income determined for federal income tax purpose.
The CARES Act created the paycheck protection program
Please see also the section later in this publication
(PPP), which authorized forgivable loans,14 and
regarding the calculation of the Colorado subtraction
authorized emergency EIDL grants, which were not
allowed for tax year 2021 under House Bill 21-1002.
required to be repaid.15 The CAA expressly provided that
Residential rental real estate no federal income tax deduction shall be denied by
reason of the exclusion of a forgiven PPP loan or an
The CAA amended certain provisions in the Tax Cuts and emergency EIDL grant from the taxpayer’s gross
Jobs Act of 2017 (Public Law 115-97) regarding income.16 Prior Department guidance advised that these
depreciation for certain residential rental property. 13 changes made by the CAA did not apply for Colorado
The amendment applied retroactively for residential income tax purposes for any tax year ending before
rental property placed in service before January 1, 2018, December 27, 2020. The Department’s prior guidance
and generally reduced the applicable recovery period regarding these deductions should be disregarded.
from 40 years to 30 years if certain conditions were met. Individuals must file amended Colorado returns, if
Prior Department guidance stated that this retroactive necessary, to correct their federal taxable income to
amendment did not apply for Colorado income tax match their federal taxable income determined for
purposes for tax years ending prior to December 27, federal income tax purpose.
2020, and the depreciation for affected property must
be determined under the Internal Revenue Code as it
existed prior to the CAA. The Department’s prior
guidance regarding these retroactive changes should be
disregarded and individuals must file amended Colorado
returns, if necessary, to correct their federal taxable
income to match their federal taxable income
determined for federal income tax purposes.
12 CARES Act, Pub. L. 116-136, section 2307. 15 CARES Act, Pub. L. 116-136, section 1110(e).
13 CAA, Pub. L. 116-260, Division EE, Title II, section 202. 16 CAA, Pub. L. 116-260, sections 276 and 278(b).
14 CARES Act, Pub. L. 116-136, sections 1101–07.
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CARES Act Tax Law Changes & Colorado Impact
Required addbacks for tax year 2020 Business interest expense deduction addback
For tax years beginning or ending between March 27, For tax years beginning or ending between March 27,
2020 and December 31, 2020, House Bill 20-1420 2020 and December 31, 2020, individuals must add back
requires individuals to add back on their 2020 Colorado to federal taxable income business interest deductions
income tax returns certain deductions claimed on their taken on the federal return to the extent they are in
2020 federal income tax returns in excess of certain excess of the limits imposed under section 163(j) of the
limitations. These addbacks were not affected by the Internal Revenue Code prior to the amendment of that
court decision concerning Rule 39-22-103(5.3). section by section 2306 of the CARES Act.18 This includes,
Therefore, taxpayers must not adjust these addbacks but is not limited to, additional deductions related to
when amending a return for tax year 2020. the increase in the applicable percentage and additional
deductions resulting from the election to use 2019
Net operating loss addback adjusted taxable income in lieu of 2020 adjusted taxable
income to calculate the limitation under section 163(j)
For tax years beginning or ending between March 27, of the Internal Revenue Code.
2020 and December 31, 2020, individuals must add back
to federal taxable income net operating loss deductions Excess business loss addback
taken on the federal return to the extent they are in
excess of the taxable income limitation imposed by For tax years beginning or ending between March 27,
section 172(a) of the Internal Revenue Code prior to the 2020 and December 31, 2020, individuals must add back
amendment of that section by section 2303 of the CARES to federal taxable income business losses to the extent
Act.17 In general, the addback is equal to the amount by they are in excess of the limits imposed under section
which a net operating loss deduction claimed on a 461(l) of the Internal Revenue Code. 19 This amount of
taxpayer’s federal income tax return exceeds 80 percent the addback is computed without regard to the
of the taxpayer’s federal taxable income determined amendment of section 461(l) by section 2304 of the
without regard to the net operating loss deduction. CARES Act except for the technical correction made by
section 2304(b)(2)(B) of the CARES Act. In general, for
tax year 2020, if a business loss reported on a taxpayer’s
return exceeds $259,000 ($518,000 if married filing
joint), the addback is equal to the amount of the loss
exceeding $259,000 ($518,000 if married filing joint).
This excess is determined without regard to any
deductions, gross income, or gains attributable to any
trade or business of performing services as an
employee.20
17 Section 39-22-104(3)(l), C.R.S. 19 Section 39-22-104(3)(m), C.R.S.
18 Section 39-22-104(3)(n), C.R.S. 20 CARES Act, Pub. L. 116-136, section 2304(b)(2)(B).
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CARES Act Tax Law Changes & Colorado Impact
House Bill 21-1002 subtraction Subtraction limitations and carryforwards
Individuals may claim a subtraction on their Colorado The subtraction described above applies only after all
return for tax year 202121 if they made an addition on other subtractions provided for in section 39-22-104(4),
their 2020 Colorado return, as described above, for a net C.R.S. The amount of the subtraction that can be applied
operating loss deduction, business interest expense for tax year 2021 is limited to the lesser of the taxpayer's
deduction, or excess business loss claimed on their 2020 Colorado taxable income or $300,000.22 Any amount of
federal return. Subject to limitations discussed later in the allowable subtraction that a taxpayer may not claim
this publication, the allowable subtraction is equal to for tax year 2021 as a result of this limitation may be
the sum of the three addbacks made on the individual’s carried forward to subsequent tax years as a subtraction
2020 Colorado return. from the taxpayer's federal taxable income until
exhausted.
Prior Department guidance indicated that the
calculation of the allowable subtraction also included This carryforward is subject to the following
any difference between the following amounts for any limitations:23
tax year ending before March 27, 2020:
➢ For tax years commencing on or after January 1,
➢ The individual’s Colorado taxable income for the 2022, but before January 1, 2026, each tax year's
tax year, as calculated under Colorado law; and subtraction may not exceed the lesser of the
taxpayer's Colorado taxable income or $150,000.
➢ The amount that the individual’s Colorado taxable
income would have been had certain retroactive ➢ For each tax year thereafter, the $150,000
provisions of the CARES Act applied to the limitation does not apply, but the subtraction
calculation of the taxpayer’s federal taxable income. claimed may not exceed the taxpayer's Colorado
taxable income.
As discussed earlier in this publication, the retroactive
provisions of the CARES Act apply to the calculation of an The subtraction must be applied first to the earliest
individual’s federal taxable income for Colorado income income tax year possible.
tax purposes. As a result, there is no difference between
the amounts described above. If an individual claimed a
subtraction on their 2021 Colorado return under House Bill
21-1002 for a difference in the amounts described above,
the individual must file an amended 2021 Colorado return
to correct the amount of the subtraction claimed to
include only the amount of the addbacks on their 2020
Colorado return for a net operating loss deduction,
business interest expense deduction, or excess business
loss claimed on their 2020 federal return.
21 The information in this section applies to tax years beginning taxable income as modified by Article 22 of Title 39, C.R.S.,
on or after January 1, 2021, but before January 1, 2022. without regard to section 39-22-104(4)(z), C.R.S. Section 39-
22 Section 39-22-104(4)(z)(II)(A), C.R.S. For the purpose of the 22-104(4)(z)(IV)(B), C.R.S.
23 Section 39-22-104(4)(z)(II)(B), C.R.S.
limitation, “Colorado taxable income” is a taxpayer’s federal
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CARES Act Tax Law Changes & Colorado Impact
C corporations C corporations may carry forward their Colorado net
operating losses to the extent allowed by statute.27
The following sections discuss certain provisions of the
CARES Act and CAA, their impact on Colorado corporate Colorado net operating loss deductions
income tax, a related addback required for tax year 2020,
and the associated subtraction allowed for tax year 2021. The Colorado net operating loss deduction a C corporation
may claim for losses arising in tax years beginning after
As discussed in greater detail in the following sections, December 31, 2017, is limited to 80 percent of the
C corporations must file an Amended Colorado C C corporation’s Colorado taxable income after the
Corporation Income Tax Return (DR 0112X) to make any deduction of any Colorado net operating losses arising
necessary corrections to their previously filed Colorado from tax years beginning prior to January 1, 2018.28 The
returns. Any amended return filed by a taxpayer must be 80 percent limitation is determined without regard to the
completed in full, including all applicable forms and amendments made by section 2303 of the CARES Act. In
attachments. Forms and instructions are available online particular, the limit is calculated after the deductions
at Tax.Colorado.gov/business-income-tax-forms. allowed under section 250 of the Internal Revenue Code.
C corporations may also file amended returns The Colorado C Corporation Income Tax Return (form
electronically online at Colorado.gov/RevenueOnline. In DR 0112) for tax years 2019 and later includes a specific
general, any amended return claiming a refund must be line for deducting Colorado net operating losses arising in
filed within four years of the due date of the original tax years beginning after December 31, 2017, that are
return, including extensions. subject to the 80 percent limitation. Therefore, although
the CARES Act suspended this limit, C corporations may
Net operating loss carrybacks not amend their returns to claim additional net operating
losses despite the recent court ruling.
The CARES Act allowed taxpayers to carry back net
operating losses arising in tax years beginning after Business interest expense limitation
December 31, 2017 and before January 1, 2021 to the
five tax years preceding the year of the loss. 24 The CARES Act made temporary changes to section
C corporations are required to add back on their 163(j) of the Internal Revenue Code. 29 Prior Department
Colorado returns the full amount of any federal net guidance stated that these retroactive CARES Act
operating loss deducted in the calculation of their changes did not apply for Colorado income tax purposes
federal taxable income.25 As a result, any federal for tax years ending prior to March 27, 2020. The
deduction claimed by a C corporation for net operating Department’s prior guidance regarding these retroactive
losses carried forward or back to the tax year should not changes should be disregarded and taxpayers must file
impact the C corporation’s Colorado income tax liability. amended Colorado returns, if necessary, to correct their
federal taxable income to match their federal taxable
C corporations may not carry back any Colorado net income determined for federal income tax purposes.
operating losses for Colorado income tax purposes.26 Please see also the section later in this publication
Therefore, C corporations may not amend their returns regarding the calculation of the Colorado subtraction
to carry back losses despite the recent court ruling. allowed for tax year 2021 under House Bill 21-1002.
24 CARES Act, Pub. L. 116-136, section 2303(b). 27 Section 39-22-504(1) and (3), C.R.S.
25 Section 39-22-304(2)(c), C.R.S. 28 Section 39-22-504(1)(b), C.R.S.; House Bill 20-1420, section
26 Section 39-22-504(3), C.R.S. 4.
29 CARES Act, Pub. L. 116-136, section 2306.
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CARES Act Tax Law Changes & Colorado Impact
Qualified improvement property Additionally, prior Department guidance stated that the
differing recovery periods for Colorado and federal tax
The CARES Act made retroactive amendments to the Tax purposes would result in higher adjusted basis for the
Cuts and Jobs Act of 2017 (Public Law 115-97) regarding property for Colorado purposes and a possible Colorado
depreciation allowed for qualified improvement property subtraction under section 39-22-104(4)(b), C.R.S., upon
(“QIP”).30 Prior Department guidance stated that these the disposition of the property. That prior guidance
retroactive amendments did not apply for Colorado should be disregarded. This property has the same
income tax purposes for tax years ending prior to March adjusted basis for Colorado tax purposes as it has for
27, 2020, and the depreciation for QIP for these years federal tax purposes. If a C corporation claimed a
must be determined under the Internal Revenue Code as Colorado subtraction based on the Department’s prior
it existed prior to the CARES Act. The Department’s prior guidance, the C corporation must amend their Colorado
guidance regarding these retroactive changes should be
income tax return to eliminate the subtraction claimed.
disregarded and C corporations must file amended
Colorado returns, if necessary, to correct their federal
taxable income to match their federal taxable income PPP loans and emergency EIDL grants
determined for federal income tax purposes. Please see
also the section later in this publication regarding the The CARES Act created the paycheck protection program
calculation of the Colorado subtraction allowed for tax (PPP), which authorized forgivable loans,32 and
year 2021 under House Bill 21-1002. authorized emergency EIDL grants, which were not
required to be repaid.33 The CAA expressly provided that
no federal income tax deduction shall be denied by
Residential rental real estate
reason of the exclusion of a forgiven PPP loan or an
The CAA amended certain provisions in the Tax Cuts and emergency EIDL grant from the taxpayer’s gross
Jobs Act of 2017 (Public Law 115-97) regarding income.34 Prior Department guidance advised that these
depreciation for certain residential rental property. 31 changes made by the CAA did not apply for Colorado
The amendment applied retroactively for residential income tax purposes for any tax year ending before
rental property placed in service before January 1, 2018, December 27, 2020. The Department’s prior guidance
and generally reduced the applicable recovery period regarding these deductions should be disregarded.
from 40 years to 30 years if certain conditions were met. C corporations must file amended Colorado returns, if
Prior Department guidance stated that this retroactive necessary, to correct their federal taxable income to
amendment did not apply for Colorado income tax match their federal taxable income determined for
purposes for tax years ending prior to December 27, federal income tax purpose.
2020, and the depreciation for affected property must
be determined under the Internal Revenue Code as it
existed prior to the CAA. The Department’s prior
guidance regarding these retroactive changes should be
disregarded and C corporations must file amended
Colorado returns, if necessary, to correct their federal
taxable income to match their federal taxable income
determined for federal income tax purposes.
30 CARES Act, Pub. L. 116-136, section 2307. 33 CARES Act, Pub. L. 116-136, section 1110(e).
31 CAA, Pub. L. 116-260, Division EE, Title II, section 202. 34 CAA, Pub. L. 116-260, sections 276 and 278(b).
32 CARES Act, Pub. L. 116-136, sections 1101–07.
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CARES Act Tax Law Changes & Colorado Impact
Business interest expense deduction addback Prior Department guidance indicated that the
calculation of the allowable subtraction also included
For tax years beginning or ending between March 27, any difference between the following amounts for any
2020 and December 31, 2020, C corporations must add tax year ending before March 27, 2020:
back to federal taxable income business interest
deductions taken on the federal return to the extent ➢ The C corporation’s Colorado taxable income for
they are in excess of the limits imposed under section the tax year, as calculated under Colorado law; and
163(j) of the Internal Revenue Code prior to the
➢ The amount that the C corporation’s Colorado taxable
amendment of that section by section 2306 of the CARES
income would have been had certain retroactive
Act.35 This includes, but is not limited to, additional
provisions of the CARES Act applied to the calculation
deductions related to the increase in the applicable
of the taxpayer’s federal taxable income.
percentage and additional deductions resulting from the
election to use 2019 adjusted taxable income in lieu of
As discussed earlier in this publication, the retroactive
2020 adjusted taxable income to calculate the limitation
provisions of the CARES Act apply to the calculation of
under section 163(j) of the Internal Revenue Code. This
an C corporation’s federal taxable income for Colorado
addback was not affected by the court decision
income tax purposes. As a result, there is no difference
concerning Rule 39-22-103(5.3). Therefore,
between the amounts described above. If a
C corporations must not adjust this addback when
C corporation claimed a subtraction under House Bill
amending a return for a tax year beginning or ending
21-1002 for a difference in the amounts described
between March 27, 2020 and December 31, 2020.
above, the C corporation must file an amended Colorado
return to correct the amount of the subtraction claimed
House Bill 21-1002 subtraction36 to include only the amount of the business interest
expense deduction addback, apportioned if applicable,
C corporations may claim a subtraction on their Colorado as described above.
return for their income tax year beginning on or after
January 1, 2021, but before January 1, 2022, if they Please see the Supplement Instructions for the 2021
made an addition on their Colorado return for the prior Colorado C Corporation Income Tax Return (DR 0112)
tax year, as described above, for business interest available online at Tax.Colorado.gov/2021-c-
expenses deducted on their federal return. In the case corporation-forms for additional information about
of a taxpayer that apportions and allocates its net claiming this subtraction.
income, the addback amount must be multiplied by the
taxpayer’s apportionment factor for the year of the
addback to determine the amount of the subtraction.
The subtraction a C corporation may claim is subject to
limitations discussed later in this publication.
35 Section 39-22-304(2)(i), C.R.S. 36 The information in this section applies to tax years beginning
on or after January 1, 2021, but before January 1, 2022.
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CARES Act Tax Law Changes & Colorado Impact
Subtraction limitations and carryforwards
The subtraction described above applies only after all
other subtractions provided for in section 39-22-304(3),
C.R.S.37 In the case of a taxpayer that apportions and
allocates its net income pursuant to Colorado law, the
subtraction applies to the taxpayer’s net income
apportioned and allocated to Colorado.38 The amount of
the subtraction that can be applied for the tax year
beginning on or after January 1, 2021, but prior to
January 1, 2022 is limited to the lesser of the taxpayer's
Colorado taxable income or $300,000.39 Any amount of
the allowable subtraction that a taxpayer may not claim
for the tax year beginning on or after January 1, 2021,
but prior to January 1, 2022 as a result of this limitation
may be carried forward to subsequent tax years as a
subtraction from the taxpayer's federal taxable income
until exhausted.
The carryforward is subject to the following limitations
and must be applied first to the earliest income tax years
possible.40
➢ For tax years commencing on or after January 1,
2022, but before January 1, 2026, each tax year's
subtraction may not exceed the lesser of the
taxpayer's Colorado taxable income or $150,000.
➢ For each tax year thereafter, the $150,000
limitation does not apply, but the subtraction
claimed may not exceed the taxpayer's Colorado
taxable income.
➢ In the case of a taxpayer that apportions and
allocates its net income pursuant to Colorado law,
the subtraction carried forward applies to the
taxpayer’s net income apportioned and allocated
to Colorado.41
37 Section 39-22-304(3)(p)(II)(A), C.R.S. without regard to section 39-22-304(3)(p), C.R.S. Section 39-
38 Section 39-22-304(3)(p)(II)(C), C.R.S. 22-304(3)(p)(IV)(B), C.R.S.
40 Section 39-22-304(3)(p)(II)(B), C.R.S.
39 Section 39-22-304(3)(p)(II)(A), C.R.S. For the purpose of the
41 Section 39-22-304(3)(p)(II)(C), C.R.S.
limitation, “Colorado taxable income” is a taxpayer’s federal
taxable income as modified by Article 22 of Title 39, C.R.S.,
10
Revised April 2023
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