Accounting method opportunities can mitigate the impact of the restriction on the deductibility of business interest expense.

The Tax Cuts and Jobs Act (TCJA) imposed a new limitation on the deductibility of net business interest expense. This limitation applies to all types of businesses that have average annual gross receipts in excess of $25 million (based on aggregation rules for controlled groups) and all tax shelters as defined in Sec. 461(i)(3). It is applicable for tax years beginning on or after December 31, 2017 and is applied at the corporate (including S corporation), partnership and sole-proprietorship levels. Taxpayers with pass-through investments may receive allocations of excess interest expense, excess interest income or excess taxable income.The interest expense deduction is limited to the sum of 1) business interest income, 2) 30% of adjusted taxable income (ATI), and 3) floor plan financing interest expense. For taxable years 2018 through 2021, ATI is defined as earnings before interest, taxes, depreciation and amortization (EBITDA). Beginning with tax year 2022, the definition of ATI is narrowed to include only earnings before interest and taxes (EBIT).

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