Lawmakers recently passed tax laws to address the economic impact of the current coronavirus pandemic. Previous posts in this series discussed the impact of these laws on net operating losses (NOL), real estate qualified improvement property (QIP) and excess business losses. This, the final post in the series, will discuss the impact of these laws on business interest expense deductions.

Why the need to address business interest expense deductions?

The Tax Cuts and Jobs Act (TCJA) essentially limited the ability of a business to deduct interest expenses to 30% of the adjusted taxable income (ATI).

How does the Coronavirus Aid, Relief, and Economic Security (CARES) Act impact this area of tax law?

In essence, the CARES Act increases the limitation outlined in the TCJA provision above. Now, instead of a 30% limitation, qualifying businesses can take a deduction for up to 50% for the 2019 and 2020 tax years. The CARES Act also includes a provision that allows taxpayers to elect to use the ATI from 2019 instead of 2020 — a valuable option as business revenue likely plummeted in 2020.

It is important to note additional rules apply to businesses that operate as a partnership. This is just one reason it is wise to have an attorney experienced in tax law review your options before choosing how to apply these changes. A misstep could result in an audit and serious financial consequences for your business. The attorneys at Goldburd McCone are experienced with these matters and can review your situation and provide guidance on the best way to take advantage of these changes.