IRS issues proposed regs on business interest limits

BVWireIssue #195-1
December 5, 2018

legislation
cash flow, DCF, cost of debt, cash flow projections, Tax Cuts and Jobs Act

The IRS proposed rules that would govern the new business interest expense deduction limit in the Tax Cuts and Jobs Act (TCJA). These limitations blunt the effects of the interest expense tax shield, which increases the cost of debt. In general, a taxpayer may deduct business interest expense up to the sum of its business interest income, plus 30% of its adjusted taxable income, and its floor plan financing interest. This has a downward impact on value for highly leveraged firms. Not impacted are smaller companies, defined as those with revenues under $25 million. The IRS has asked for comments on all aspects of the proposed regulations by 60 days after they are published in the Federal Register and plans to hold a hearing on Feb. 25, 2019, in Washington, D.C. (which may continue to February 26, if necessary).

Please let us know if you have any comments about this article or enhancements you would like to see.