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Any business interest expense that was disallowed in 2021 due to the limitation is carried forward to 2022 and will no longer be subject to the limitation in 2022. Therefore, you do not need to compute the section 163 (j) limitation for the 2022 taxable year.
Sec. 163(j) limits the deduction of Business Interest Expense (BIE). BIE is interest paid or accrued on indebtedness properly allocable to a trade or business. The limitation includes Business Interest Income (BII) and Floor Plan Financing Interest (FPFI) (and Adjusted Taxable Income (ATI)).
After providing some background on the Sec. 163(j) business interest limitation, this item discusses how the rules for calculating ATI have changed for 2022 and beyond and how this affects the deductibility limit.
Under new Sec. 163(j), business interest expense deductions are limited, and a business interest expense that is disallowed in the current year is carried forward to the succeeding tax year.
Some interest can be claimed as a deduction or as a credit. To deduct interest you paid on a debt, review each interest expense to determine how it qualifies and where to take the deduction. When you prepay interest, you must allocate the interest over the tax years to which the interest applies.
A taxpayer may deduct interest paid or accrued within a tax year on a valid debt, but IRC §163(j) limits the business interest expense amount allowed as a deduction.
A business interest expense is the cost of interest that is charged on business loans used to maintain operations. Business interest expenses may be deductible as an ordinary business expense...
Small businesses are exempt from a new limitation on deducting business interest, which means such interest is fully deductible. Small business for this purpose means those with those with average annual gross receipts in the three previous years less than a set amount. For 2018, it was $25 million. For 2019, it is $26 million.
A business can deduct its business interest only to the extent of the sum of its business interest income, 30% of its adjusted taxable income, and its floor plan financing income. Business interest in excess of the limitation can be carried forward indefinitely.
Under the U.S. federal tax code, businesses are permitted to deduct net interest payments for debt against their taxable income up to certain limits. From 2018 through 2021, the limit was set at 30 percent of EBITDA.