For companies with average revenues over $25 million in the three previous years, the Tax Cuts and Jobs Act (TCJA) had a major impact on the deductibility of business interest expense. Prior to 2018, businesses were allowed to deduct 100% of all interest expense that was incurred. Under TCJA, taxpayers may be limited in the amount of business interest expense that can be deducted. Beginning for the 2018 tax year, taxpayers with business interest expense are required to calculate if they have a limitation on the deductibility of interest expense. Under TCJA interest expense can be limited to interest income plus 30% of taxable income plus interest expense, depreciation and amortization.
Most companies in the trucking industry are currently benefiting from the bonus depreciation change of 100% deductibility in the first year of service for all new and used assets, which currently has no impact on the deductibility for interest expense. Unfortunately, this will not be the case beginning in tax year 2022. Starting in 2022, depreciation and amortization are no longer added back in the calculation mentioned earlier, which ultimately will lower the limitation threshold and likely cause limitation on interest expense beginning in that year. Any interest expense that is limited is not lost forever, but it can be carried forward indefinitely and applied against taxable income for future years in which a taxpayer’s interest expense is below the limitation threshold. For tax planning purposes, this should be a major consideration as it could have a significant impact in the coming years.
RubinBrown’s Transportation and Dealership Service Group professionals can help answer your questions or evaluate the impact that this may have on you or your business. Please contact one of the Transportation and Dealership Service Group professionals or your primary RubinBrown contact for assistance.
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