Question

Which of the following is a true statement about the limitation on business interest deductions?

1) Interest disallowed by this limitation is carried back three years and then forward five years.
2) The limitation is calculated as a percentage of the taxpayer's total taxable income.
3) This limitation is not imposed on businesses with average annual gross receipts of $25 million or less for the prior three taxable years.
4) All of the choices are false.
5) All of the choices are true.

Answer 1

The limitation on business interest deductions is not imposed on businesses with average annual gross receipts of $25 million or less for the prior three taxable years.

Step-by-step explanation:

The true statement about the limitation on business interest deductions is statement 3) This limitation is not imposed on businesses with average annual gross receipts of $25 million or less for the prior three taxable years.

This means that if a business has average annual gross receipts of $25 million or less for the previous three years, they are not subject to the limitation on business interest deductions. This allows them to deduct the full amount of their interest expenses from their taxable income.

For businesses that exceed the $25 million threshold, there is a limitation on their ability to deduct interest expenses. The Tax Cuts and Jobs Act of 2017 limited the deduction for business interest expenses to 30% of the business's adjusted taxable income. Any interest expenses that exceed this limit can be carried forward to future years.