Modification of Business Interest Under the CARES Act

Key Points:

  • This section of the CARES Act increases the business interest limitation threshold for adjusted taxable income to 50% (up from 30%).

The proposed CARES Act, which is currently being battled on the Senate floor, has many proposed sections that will impact businesses.  There are many provisions in which congress is attempting to provide tax relief for losses to business owners.  One of these is the increase to the business interest limitation threshold under the CARES Act.

In the Past:

The TCJA put into a place a limitation on business interest deductions. This limitation meant that for applicable taxpayers (those with 3 prior years’s average gross receipts in excess of $25,000,000) business interest deductions started to be limited to the total of business interest income, and 30% of adjusted taxable income.

What’s Proposed:

This bill would temporarily increase the taxable income percentage to 50% for tax years beginning in 2019 and 2020. Taxpayers may also make an election to treat the tax year 2019 adjusted taxable income as the tax year 2020 adjusted taxable income for the purposes of the limitation.

What’s Unclear:

It is unclear whether this will actually compensate for expected dips in business’ taxable incomes in 2019, related to mandated closures and reduced production and sales.

For further questions relating to the potential tax adjustments from COVID-19 please don’t hesitate to reach out to me at mhopkins@teamdkb.com or any one of our team members at hello@teamdkb.com.