Summary of the Limitation

• business interest income, and
• 30 percent of adjusted taxable income (ATI). For taxable years beginning after Dec. 31, 2017, and before Jan. 1, 2022, ATI is taxable income other than items not allocable to a trade or business, business interest income and deductions, depreciation, amortization, and depletion, the 20 percent pass-through deduction for business income, and net operating losses (NOLs). For taxable years beginning after Dec. 31, 2021, depreciation, amortization, and depletion is excluded from the calculation.
• For taxpayers with relatively low leverage, the exclusion of depreciation in determining ATI through 2021 might produce a situation where interest deductions would not be limited until 2022, such that the more beneficial depreciation and expensing provisions could justify a delay in the election.
• Any disallowed interest may be carried forward indefinitely.
• Partnerships are evaluated on a separate entity basis, with excess ATI allowed to flow up to partners in certain circumstances.

Exclusion From the Interest Limitation

New permanent Alternative Depreciation System (ADS)

• Residential real estate: 27.5 years regular period and new 30 year ADS period
• Nonresidential real estate: 39 years regular period and 40 year ADS period
• Qualified improvement property: new 15 year (straight line) regular period and 20 year ADS period
• The new depreciable periods apply to taxable years beginning after 2017. It is not clear how the amendments apply to existing property.

Application for Partnerships

Example of Application to a Partnership