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Rock Island Corporation generated taxable income of $1 million this year. Taxable income was computed on...

Rock Island Corporation generated taxable income of $1 million this year. Taxable income was computed on $50 million of revenues and included $50,000 of interest income, $150,000 of interest expense, and $80,000 of depreciation. What is Rock Island's maximum business interest deduction for the year?

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Answer #1
Particulars Amount ($)
Taxable income $   10,00,000
Add: Depreciation $         80,000
Add: Interest expense $     1,50,000
Less: Interest income $         50,000
Adjusted Taxable income (A) $   11,80,000
30% of adjusted taxable income - A*30% $     3,54,000

Net interest expense (150000-50000) = $100,000

Maximum interest deductable for Rock land corp is $3,54,000 or net interest expense which ever is less

Hence Rock land corp can deduct $1,00,000 from its adjusted taxable income.

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