Question

George operates a business that generated revenues from services of $50 million in 2019 and reported deductible expenses other than interest of $49 million in 2019, which included depreciation expense of $500,000. The business paid interest expenses of $800,000 in 2019, none of which was for loans used to purchase tax-exempt investments. What is the maximum business interest deduction that George will be eligible to claim this year? Use the most recent tax law (as modified by the CARES Act) and assume George's business is not eligible for the small business exception.

• $750,000

• $450,000

• $500,000

• $800,000

• $522,000

Answer 1

The maximum business interest deduction that George will be eligible to claim this year is $450,000

Explanation:
For computing the maximum business interest deduction, first, we have to compute the adjusted taxable income. So, the computation of adjusted taxable income is shown below:
= Allocable taxable income + business interest + depreciation amount
= $(50,000,000 - 49,000,000 - 800,000) + $800,000 + $500,000
= $1,500,000

Now the business interest deduction is 30% of adjusted taxable income
So, the maximum business interest deduction would be
= Adjusted taxable income × deduction rate
= $1,500,000 × 30%
= $450,000

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