Rock Island Corporation generated taxable income (before deductions for depreciation, interest expense, and net operating loss carryovers) of $1 million this year. Taxable income was computed on $50 million of revenues and included $50,000 of interest income. The company paid $450,000 in interest expense. What is Rock Island's maximum business interest deduction for the year?
What will be an ideal response?
$335,000 = $50,000 + [30% × ($1,000,000 ? $50,000)].
The business interest deduction is the amount of interest income plus 30 percent of the taxable income computed without regard to (1) any item of income, gain, deduction, or loss that is not properly allocable to a trade or business; (2) any business interest expense or business interest income; (3) the amount of any net operating loss deduction; and (4) deductions allowable for depreciation, amortization, or depletion.
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