Executive Summary: Final Treasury Regulations Clarify Business Interest Deduction Limitation

On July 28, 2020, the Internal Revenue Service (IRS) issued final regulations (T.D. 9905) (the final regulations) concerning the limitation on the deductibility of business interest expense (BIE) under Section 163(j) of the Internal Revenue Code (the Code), as amended by legislation commonly referred to as the Tax Cuts and Jobs Act (enacted Dec. 22, 2017) and the Coronavirus Aid, Relief, and Economic Security Act (enacted March 27, 2020) (the CARES Act).

Section 163(j) generally limits the amount of BIE that can be deducted in a taxable year to the sum of (i) the taxpayer's business interest income for the taxable year; (2) 30% of adjusted taxable income (ATI) for the taxable year; and (3) floor plan financing interest expense for the taxable year. However, under the CARES Act, the amount of BIE that is deductible for taxable years beginning in 2019 or 2020 is computed using 50% of the taxpayer's ATI for the taxable year (or, with respect to taxable years beginning