Question

Flip's Pizzeria Inc. has the following financial items for the current year: Adjusted Taxable Income before Interest $39,600,000 Business Interest Income $600,000 Interest Expense $16,600,000 How much interest expense can Flip deduct in the current year?

Interest Expense Deduction =

Hint: Not 16,000,000 or 16,600,000 or 1,635,266 or 16,352,238

Answer 1

Calculation : Under section 163(j),deductible business interest expense cannot exceed the sum of:

-Business interest income

-30% of adjusted taxable income

-Floor financing interest expenses

Adjusted taxable income is defined as taxable income before :

-Any item if income ,gain,loss,or deduction not allocable to business

-Amortization, depreciation and depletion

-Business interest income or expense

Calculation:

Adjusted taxable income $39600000

30% of ATI $11880000

Business interest income $600000

Business interest limitation = 52,080,000