8532 / Is business interest deductible when the business is a corporation?
Under pre-2018 law, business owners were typically permitted to deduct interest expenses incurred in carrying on a trade or business (subject to limitations).3 The 2017 tax reform legislation generally limits the interest expense deduction to the sum of (1) business interest income, (2) 30 percent of the business’ adjusted taxable income (ATI) and (3) floor plan financing interest (see below).4 Businesses with average annual gross receipts of $25 million ($31 million in 2025) or less for the three-taxable year period that ends with the previous tax year are exempt from this new limitation (i.e., businesses that meet the gross receipts test of IRC Section 448(c)).5
Generally, the limit applies at the taxpayer level, but in the case of a group of affiliated corporations that file a consolidated return, it applies at the consolidated tax return filing level.
“Business interest” generally excludes investment interest. It includes any interest paid or accrued on indebtedness properly allocable to carrying on a trade or business. “Business interest income” means the amount of interest that is included in the taxpayer’s gross income for the tax year that is properly allocable to carrying on a trade or business.