Business Taxes: The Impact of Reduced Corporate Rates, the Qualified Business Income Deduction, Immediate Expensing and the Interest Deduction Limitation

LIMITATIONS ON THE DEDUCTIBILITY OF INTEREST • Before the TCJA, corporate interest deductions were limited under the Code Section 163(j) earnings stripping rules. The TCJA eliminates that provision. • Under the TCJA, a taxpayer’s yearly interest deduction is limited to the taxpayer’s business interest plus 30% of the taxpayer’s adjusted taxable income, which generally is taxable income computed, until the end of 2021, without deduction for depreciation, amortization or depletion. • A taxpayer’s limitation is calculated at the entity level for corporations and pass-through entities. Partners, however, can deduct additional interest expense up to their distributive share of the partnership’s excess taxable income. • Interest expense in excess of the new limitation may be carried forward indefinitely. Partnerships allocate such excess interest expense to their partners, and partners may deduct such interest in future years to the extent of their share of the partnership’s excess taxable income. • The limitation on interest deductions does not apply to regulated electrical power or gas companies which, for this purpose, are defined in the same manner as for the exclusion from immediate expensing.


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