Maximize Interest Expense Deductions
Business Interest Expense
The Tax Cuts and Jobs Act (TCJA) significantly expanded Section 163(j) to impose a limitation on business interest expense of many taxpayers, with exceptions for small businesses (those with three-year average annual gross receipts not exceeding $27 million for 2022), electing real property trades or businesses, electing farming businesses and certain utilities.
The deduction limit is based on 30% of adjusted taxable income. The amount of interest expense that exceeds the limitation is carried over indefinitely.
Beginning with 2022 taxable years, taxpayers will no longer be permitted to add back deductions for depreciation, amortization, and depletion in arriving at adjusted taxable income (the principal component of the limitation).