Question

In the current year, Nighthawk Corporation, a calendar year C corporation, has $5,080,000 of adjusted taxable income and $152,400 of business interest income. Nighthawk has no floor plan financing interest. The business interest expense for the year is $2,032,000. a. Assume that Nighthawk has average gross receipts for the prior three-year period of $35,200,000. Determine Nighthawk's current-year deduction for business interest. $______ b. Assume that Nighthawk has average gross receipts for the prior three-year period of $19,500,000. Determine Nighthawk's current-year deduction for business interest. $______

Answer 1

Answer:

1. $‭1,676,400‬
2. $2,032,000.

Explanation:

1. Nighthawk deduction for business interest assuming prior three-year period of $35,200,000 average gross receipts

As per the Tax Cuts Act of 2017, Nighthawk can deduct its Business interest income and up to 30% of its taxable income.

= 152,400 + (5,080,000 * 30%)

= $‭1,676,400‬

2. Assuming that Nighthawk has average gross receipts for the prior three-year period of $19,500,000, this would put them below the $25 million mark from the Act which means the deduction would be the entire business interest expense of $2,032,000.