Are business interest expense carryforwards incurred during the 2018 and 2019 tax years deductible for excise tax purposes? If so, how do I track the carryforwards?

Yes. Taxpayers that incurred business interest expense carryforwards during the 2018 and 2019 tax years, as a result of Tennessee being coupled with Section 163(j) of the Tax Cuts and Jobs Act, may deduct these carryforwards for tax years beginning on or after January 1, 2020. The carryforwards may be deducted for excise tax purposes to the extent they are deducted for federal income tax purposes. A worksheet is available to assist taxpayers in maintaining a record of their 2018 and 2019 carryforwards. This worksheet is optional and not required to be filed with the excise tax return.

The below example illustrates a completed worksheet (which can be found here).

  • The first two rows of the worksheet show the calculation of a taxpayer’s business interest expense carryforwards incurred during the 2018 and 2019 tax years that are available for deduction as of January 1, 2020.
  • The third row shows that, for the 2020 tax year, the taxpayer’s federal business interest expense deduction (in Column (c)) is greater than the taxpayer’s actual business interest expense incurred during the tax year (in Column (b)).
  • This indicates that the taxpayer was able to deduct a previously established carryforward for federal income tax purposes, as reflected by the carryforward balance decrease in Column (d).
  • Column (f) of the worksheet indicates that the carryforward deducted for the 2020 tax year originated from the 2018 tax year.
  • Column (g) indicates the amount of the carryforward deducted, and Column (h) indicates the remaining carryforward balance for the 2018 tax year.
  • For the 2020 tax year, in addition to the taxpayer’s current year business interest expense, the taxpayer will deduct the $87,500 carryforward from the 2018 tax year on Schedule J, Line 27a of its excise tax return; the taxpayer will report a remaining carryforward balance of $55,000 on Schedule J, Line 27b (the remaining $17,500 balance from 2018 plus the 2019 balance of $37,500).

For more information, please see important notice #20-16-Interest Expense Carryforward and important notice #19-18-Interest Expense Computation.

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