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Thoughts on the Senate tax bill - Interest expense deductions The House bill limits interest expense deductions to 30% of EBIDTA. The Senate proposal is much more limited. It limits interest expense deductions of adjusted taxable income (same term as the House bill, but with a different definition). The Senate limit is 30% of business taxable income before (1) interest expense, (2) the 17.4% deduction for business income, and (3) any NOL deduction (which couldn't apply to MLPs). The 30% limit doesn't apply to certain industries. For MLPs, the important exception is that the limit does not apply to FERC- regulated operations. So the list of MLPs with FERC-regulated operations that I gave in my prior post would be exempted from this disallowance, with regard to those specific operations. I forgot to mention - the interest disallowance rules may have only a limited effect on partnerships, including MLPs. C Corporations can't replace debt with preferred stock without losing the interest expense deduction. But partnerships can - they don't get a deduction for preferred distributions, but they can allocate taxable income to the preferred units on the annual K-1, which has the same effect as a deduction. So unless an MLP would have problems selling preferred units, they should be able to replace debt with preferreds. So I think the effect of the new law would be a whole lot of new preferred units being issued. And I still can't see anything in the law that addresses the interaction between the interest expense limitation and IRC 754. Is the 754 deduction a partnership-level item (the way most MLPs currently report it), which would affect the interest expense deduction? Or is it a separately stated partner deduction, which presumably does not affect the MLP? Again, I have no idea what, if anything, will pass. |
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