Village Inc. has average gross receipts of $100 million annually. This year, Village incurred $25 million of net business interest and has adjusted taxable income of $42 million. Village's current deduction for business interest is:

Question

Quizplus · Accepted Answer

The Tax Cuts and Jobs Act (TCJA) introduced new business interest expense limitation rules, which limit the current deduction for business interest to 30% of the taxpayer's adjusted taxable income (ATI) plus the taxpayer's business interest income for the year. However, for taxable years beginning in 2019 and 2020, the CARES Act increased the limitation from 30% to 50% of ATI. In this case, Village Inc.'s limitation is calculated as: 
$42m (ATI) x 50% = $21m
Therefore, Village can currently deduct up to $21 million of its net business interest expense. However, Village's net business interest expense is $25 million, so the deduction is limited to $12.6 million (the full $21 million limitation minus the excess interest expense of $3.9 million). Therefore, the correct answer is C.