||Currently, a U.S. C corporation meeting certain requirements (e.g., debt-to-equity ratio of 1.5:1, debt issued to a related foreign or tax exempt lender, etc.) can generally deduct it net interest expense up to 50% of adjusted taxable income. The disallowed amount carries forward to following years.
||Tax years beginning after 2017, the deduction for net interest expense would be limited to 30% of the business’s adjusted taxable income. This rule is not applicable for business with average gross receipt of $25 million or less.
||Tax years beginning after 2017, the deduction for net interest expense would be limited to 30% of the business’s adjusted taxable income. This rule is not applicable for business with average gross receipt of $15 million or less. Disallowed interest could be carried forward indefinitely. There are certain exceptions to real property trades or business that use the ADS or farming businesses.
||The House and Senate are broadening the scope of the current law to include C corporations, partnerships and S corporations. Also, the House and Senate bills limit net interest expense deduction to 30% of adjusted taxable income. In addition, there does not appear to be the debt-to-equity ratio requirement or related foreign or tax exempt lender requirement in order to be subject to this provision. Note there are some differences in defining adjusted taxable income by the House and Senate. This will be one of the issues they have resolve.
||An additional 50% deduction can be claimed for certain new property placed in service in 2017 (40% for 2018 and 30% for 2019).
||The first year additional deduction would be increased to 100% for qualified properties, not limited to new properties, placed in service after September 27, 2017 and before January 1, 2023
||The first year additional deduction would be increased to 100% for qualified properties placed in service after September 27, 2017 and before January 1, 2023; 80% in 2023; 60% in 2024; 40% in 2025; and 20% in 2026. Taxpayers can elect to take 50% in lieu of 100% first year deduction. The definition of qualified properties would include tangible personal properties plus certain film, TV, and live theatrical productions.
||This gives businesses an opportunity to invest in capital equipment and deduct the entire amount in the first year rather than over several years. The House proposal also includes used assets as well as new, while the present law and the Senate proposal only include new assets.
|Section 179 Expensing
||A taxpayer can expense cost of properties in the year of placing in service up to $500,000. This amount should be subject to phase-out after $2 million of purchase in a given year.
||Effective for tax years 2018 through 2022, Section 179 expensing would be increased to $5 million and the phase-out amount to $20 million.
||After 2017, Section 179 expensing would be increased to $1 million and the phase-out amount to $2.5 million.
||It might be beneficial to wait until January to make additional capital purchases if your business has already hit or exceeds the current thresholds effective for 2017.
|Real Property Depreciation
||Nonresidential real properties should be depreciated for 39 years; and residential rental properties for 27.5 years.
||Nonresidential real and residential rental properties would be depreciated for 25 years; and improvement property for 10 years.
||The change would mean businesses would be able to depreciate over a shorter life and have larger depreciation deductions each year.
||Corporations and partnerships with corporate partners should use accrual method of accounting with average gross receipt of over $5 million.
||For tax years beginning after 2017, the average gross receipt threshold would be increased to $25 million.
||The threshold would be increased to $15 million effective for tax years beginning after 2017.
||Opportunity for larger businesses to use cash method that want to manage their cash flow.
|Taxpayers with average gross receipt of less than $10 million should be permitted to account for inventory as material and supplies.
||The average gross receipt would be increased to $25 million, regardless of industry for tax years beginning after 2017.
||The threshold would be increased to $15 million.
||Larger businesses would be able to expense inventory items rather than capitalize them.
|Taxpayers with average gross receipt of $10 million should consider Uniform Capitalization (UNICAP) rules.
||The average gross receipt would be increased to $25 million, for tax years beginning after 2017.
||The threshold would be increased to $15 million, effective for tax years beginning after 2017.
||Allows deferral of gain from an exchange of like-kind property.
||After 2017, it would limit gain deferral on like-kind exchange to only real property.
||After 2017, it would limit the non-recognition of gain for like-kind exchange to only real property that is not held primarily for sale.
||House and Senate have similar proposals that limit the type of property applicable.
|Net Operating Loss (NOL) Deduction
||NOL can be carried back 2 years and carried forward 20 years to offset taxable income
||NOL carry back generally would be eliminated, for losses arising after 2017 NOL deduction would be limited to 90% of taxable income with indefinite carryforward.
||Substantially same as House except the tax years beginning after 12/31/2022, the NOL deduction is limited to 80% with certain other exceptions.
||The Senate proposes a limitation of 80% (rather than 90%) starting in 2023.
|Domestic Production Deduction
||The bill would repeal the deduction allowed for domestic production activities after 2017
||The bill would repeal the deduction allowed for domestic production activities after 2017, for corporations the repeal is after December 31, 2018.