The 30% business interest limitation for 2018 can have a significant effect on tax liability, even in years of low profitability.
To determine the limitation you first calculate adjusted taxable income, which is taxable income without considering these five items:
• The new 20% qualified business income deduction;
• Any net operating loss deductions;
• Any business interest expense or income;
• Any non-business income, like the gains from the sale of assets held for investmen;
• And any depreciation, amortization or depletion through 2021.
However, the limitation does not apply to investment interest, electing real property companies, electing farming entities and certain utility companies. Additionally, it does not apply to small businesses with average annual gross receipts over the prior 3 years of $25 million or less.