Question

Charley Inc is a large corporation that reported revenue of $80 million and expenses (other than interest) of $78 million in 2019. Included in the expenses is depreciation of $300,000. Charley Inc. paid business interest of $1,000,000 in 2019. What is the maximum amount of interest expense deduction this year? Assume the small business exception does not apply.

Apply the rules as explained in the textbook (30% of ATI); however, make sure you are aware how the CARES Act changed the % of ATI limitation for purposes of applying the business interest expense limitation rules.

A. 510,000

B. 1,000,000

C. 370,000

D. 366,000

E. 690,000

Answer 1

	Particulars	$
	Revenue	$    80,000,000
Less	Expenses	$    78,000,000
Add	Depreciation	$          300,000
	Adjusted taxable income	$       2,300,000
	Interest expense limitation @30% of AGI	$      690,000.0

As per the Cares Act, For Interest cpmputaion ATI should be withoud deducting Depreciation, amortization or depletion.

Hence option E is correct.