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CARES Act Eases Limitation on Deducting Business Interest Expenses

April 14, 2020

By: Amanda Wilson 

The 2017 Tax Cuts and Jobs Act introduced a new Section 163(j) limitation on taxpayers deducting business interest expense (our prior discussion of this tax law change can be found here). Under this limitation, businesses could generally only deduct net business interest expense in any given year equal to 30% of adjusted taxable income. This provision was intended as a revenue raiser to offset the cost of the tax cuts associated with the Tax Cuts and Jobs Act.

To assist businesses struggling in the current economic environment, the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act enacted last month provides a temporary easing of this deduction limitation.

Specifically, Section 2306 of the CARES Act increases the limitation from 30% of adjusted taxable income to 50% of adjusted taxable income for the 2019 and 2020 tax years, allowing businesses to take a larger interest expense deduction. In the case of partnerships, the increased limitation is only available for the 2020 tax year. This relief is not mandatory, as a taxpayer may elect to continue to apply the 30% limitation if they wish to do so.

In addition to increasing the percentage limitation, the CARES Act also allows taxpayers to elect to use their 2019 adjusted taxable income in calculating their 2020 limitation. This change recognizes that, for the majority of taxpayers, the 2019 adjusted taxable income will be higher than their 2020 adjusted taxable income, and therefore will provide more of a benefit.  

Taxpayers who have already filed their 2019 tax returns may want to consult their tax advisors and consider filing an amended return to take advantage of this recent tax change.  

Be sure to visit our Coronavirus (COVID-19) Resource Center page to keep up to date on the latest news.


This article is informational only. You should consult an attorney before acting or failing to act. The law may change rapidly and no warranty is given. LOWNDES DISCLAIMS ALL IMPLIED WARRANTIES AND WITHOUT LIMITATION, ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE. ALL ARTICLES ARE PROVIDED AS IS AND WITH ALL FAULTS. Consult a Lowndes attorney if you wish to establish an attorney/client relationship.
Amanda

A member of the firm’s tax practice, Amanda Wilson concentrates on federal tax planning and structuring. She represents clients in a wide variety of complex federal tax matters with a particular emphasis on pass-through entities such as partnerships, S corporations and real estate investment trusts. Specifically, Amanda focuses on advising clients on the formation, operation, acquisition and restructuring of such pass-through entities. In addition, she regularly advises clients on the structuring and operation of private equity funds, real estate funds and timber funds. Amanda is the author of the Bloomberg Tax Management Portfolio 718-3rd Edition, Partnerships- Disposition of Partnership Interests or Partnership Business; Partnership Termination.

Amanda regularly works in structuring deals to benefit from tax advantaged structures, including like-kind exchanges, new market tax credits, low income housing tax credits, and qualified opportunity zones. Amanda also has extensive experience in corporate planning and international tax matters, as well as federal tax controversy. Her practice before the Internal Revenue Service (IRS) includes providing advice on audits and appeals, drafting protests and ruling requests, and negotiating settlements.

Prior to joining the firm, Amanda worked for Sutherland Asbill & Brennan LLP (now Eversheds Sutherland), an Am Law 100 firm in the Atlanta office, where she was part of Sutherland’s Tax Practice Group. Amanda has also served as an adjunct professor at Emory University School of Law where she taught Partnership Taxation.

Amanda regularly contributes to the firm’s Taxing Times blog and is a regular panelist on tax webinars hosted by Strafford Publications.

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