Tax reform readiness: New US interest expense limitation

Overview

The 2017 tax reform reconciliation act (the Act) — the largest overhaul of the US tax code (the Code) in 31 years — includes a revised interest expense limitation (‘new Section 163(j)’) that is broader than the previous version of Section 163(j) (‘old Section 163(j)’).

New Section 163(j) limits US business interest expense deductions to the sum of business interest income, 30 percent of ‘adjusted taxable income,’ and the floor plan financing interest of the taxpayer for the tax year.

This Insight will review the basics of new Section 163(j). PwC on January 24 hosted a webcast featuring PwC specialists providing in-depth analysis of, and insight into, that provision. To listen to the webcast replay and to register for future webcasts in PwC’s Tax Reform Readiness webcast series — in which PwC specialists will discuss additional key provisions of the Act and the latest administrative guidance under those provisions —— go here. The next webcast, ‘Tax reform readiness: US base erosion and anti-abuse tax (BEAT),’ will take place January 31, 2018, from 2:00 PM - 3:00 PM (EST).

The takeaway

New Section 163(j) creates many situations that will require taxpayers to make reasoned interpretations of the law pending Treasury and IRS guidance. We expect guidance on the new interest expense limitation provision later this year.