Village Inc. has average gross receipts of $100 million annually. In 2019, 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

Under the Tax Cuts and Jobs Act (TCJA), businesses with average gross receipts of more than $25 million are subject to limitations on business interest expense deductions. In this case, Village Inc. exceeds the threshold and will have its deduction for business interest limited.

To calculate the limitation, we need to determine the business interest expense limit. This is calculated as 30% of adjusted taxable income (42 million) plus business interest income (which is not provided in the question). Thus, the business interest expense limit is $12.6 million (30% x $42 million).

Next, we need to determine Village's actual business interest expense. This is provided in the question as $25 million.

Finally, we compare the actual business interest expense ($25 million) to the business interest expense limit ($12.6 million). Since the actual business interest expense exceeds the limit, the deduction for business interest is limited to the business interest expense limit of $12.6 million. Therefore, the correct answer is C.