01 Apr CARES Act – Business Interest Deductions

The 2017 tax reform bill generally limits the amount of interest that can be deducted by most taxpayers in a taxable year to 30% of the “adjusted taxable income” (ATI) of such taxpayer for such taxable year. For the 2019 and 2020 tax years, taxpayers may elect to increase this limit on allowable business interest deduction from 30% to 50% of adjusted taxable income (“ATI”). In addition, taxpayers can elect to use their ATI in 2019 in place of their 2020 ATI for purposes of determining the deductibility of their business interest expense for 2020, which could increase the business interest deduction.

OUR BOTTOM LINE: Partnerships are subject to special provisions. This provision is intended to allow businesses to increase liquidity and reduce the cost of capital, so that they are able to continue operations and keep employees on payroll.