Renee operates a proprietorship selling collectibles over the web, and last year she purchased a building for $24 million for her business. This year, Renee's proprietorship reported revenue of $85 million and incurred total expenses of $78.1 million. Her expenses included cost of goods sold of $48.5 million, sales commissions paid of $6.4 million, $10.5 million of interest paid on the building mortgage, and $12.7 million of depreciation. c. Suppose that Renee's revenue includes $5 million of business interest income. What is the maximum amount of business interest expense that could be deducted this year under the business interest limitation?

Question

Business

Arely

14 September, 11:29

Renee operates a proprietorship selling collectibles over the web, and last year she purchased a building for $24 million for her business. This year, Renee's proprietorship reported revenue of $85 million and incurred total expenses of $78.1 million. Her expenses included cost of goods sold of $48.5 million, sales commissions paid of $6.4 million, $10.5 million of interest paid on the building mortgage, and $12.7 million of depreciation. c. Suppose that Renee's revenue includes $5 million of business interest income. What is the maximum amount of business interest expense that could be deducted this year under the business interest limitation?

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Solution:

Computation of Interest deductible are as follows

Taxable Income before Interest 85.00

(78.10)

(a) 6.90

(+) Deprecition (b) 12.7

(+) Net Interst Expense (c) 10.5

Adjusted Taxable Income 30.10

(a+b+c)

Interest deductible @30% of ATI 9.03

If revenue Include 5 million of Interest income

Taxable Income Before Interest limitation (a) 6.9

(+) Net Interst Expense (10.5-5) (b) 5.5

(+) Deprecition (c) 12.7

Adjusted Taxable Income 25.1

(a+b+c)

Interest dedutible @30% of ATI 7.53

Max Interest Allowable (Lower of 7.53 or 5.5) 5.5