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

Taylor Morgan

7 May, 13:45

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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Amaris Higgins · Answer 1

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