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The 2017 Tax Cuts and Jobs Act (“TCJA”) created a business interest expense limitation under Internal Revenue Code Section 163(j). Under TCJA, the business interest expense deduction was generally limited to 30% of Adjusted Taxable Income (“ATI”) plus business interest income. For taxable years beginning in 2019 and 2020, the CARES Act increases the allowable interest deduction, after taking into account floor plan financing and business interest income, to 50% of ATI. However, the 2019 increase does not apply to partnerships. For partnership tax years beginning in 2019 only, partnerships continue to apply the 30% ATI limitation and pass out the excess business interest expense to their partners for utilization or carryforward. However, the CARES Act does allow partners to deduct 50% of the 2019 excess business interest expense carryforward on their 2020 returns without regard to the Section 163(j) limitation.
This can be more easily illustrated with an example of the limitation and excess business interest expense carryforward.
For additional information about the new Section 163(j) limitation on the deductibility of business interest expense for 2019 and 2020, please contact your HCVT tax professional or Glenn Dance at email@example.com. To learn more about the impact of COVID-19, see about-covid-19.html