Question

Renee operates a proprietorship selling collectibles over the web, and last year she purchased a building for $24 million for her business. This year, Renee’s proprietorship reported revenue of $85 million and incurred total expenses of $78.1 million. Her expenses included cost of goods sold of $48.5 million, sales commissions paid of $16.9 million, $10.5 million of interest paid on the building mortgage, and $12.7 million of depreciation.

b. How much business interest expense can Renee deduct this year?

c. Suppose that Renee’s revenue includes $5 million of business interest income. What is the maximum amount of business interest expense that Renee can deduct this year?

Answer 1

Computation of Interest deductible are as follows
Taxable Income before Interest			85.00
			(78.10)
		(a)	6.90
(+) Deprecition		(b)	12.7
(+) Net Interst Expense		©	10.5
Adjusted Taxable Income			30.10
(a+b+c)
Interest dedutible @30% of ATI			9.03
If revenue Include 5 million of Interst income
Taxable Income Before Interest limitation		(a)	6.9
(+) Net Interst Expense (10.5-5)		(b)	5.5
(+) Deprecition		©	12.7
Adjusted Taxable Income			25.1
(a+b+c)
Interest dedutible @30% of ATI			7.53
Max Interest Allowable (Lower of 7.53 or 5.5)			5.5