Relaxation of Business Interest Deduction Limit

The 2017 Tax Custs and Jobs Act (TCJA) generally limited the amount of business interest allowed as a deduction to 30% of adjusted taxable income (ATI).  The CARES Act generally allows businesses, unless they elect otherwise, to increase the interest limitation to 50% of ATI for 2019 and 2020, and to elect to use 2019 ATI in calculating their 2020 limitation.  For partnerships, the 30% of ATI limit remains in place for 2019 but is 50% for 2020.  However, unless a partner elects otherwise, 50% of any business interest allocated to a partner in 2019 is deductible in 2020 and not subject to the 50% (formerly 30%) ATI limitation.  The remaining 50% of excess business interest from 2019 allocated to the partner is subject to the ATI limitations.  Partnerships, like other businesses, may elect to use 2019 partnership ATI in calculating their 2020 limitation.