The U.S. Internal Revenue Service (IRS) moved on Tuesday to ease the tax burdens of private equity portfolio companies and heavily indebted industries.
Prior to President Donald Trump's 2017 tax-code overhaul, interest expenses were generally fully deductible. The Trump tax law capped tax deductions for debt interest payments at 30 percent of EBITDA (earnings before interest, taxes, depreciation, and amortization).
The new arrangement, laid out in 575 pages, reflects a temporary bump in the cap, to 50 percent through year-end. In addition, the Treasury will no longer apply a limit on some transactions that don't officially take the form of a loan, but that potentially could be used to skirt the deduction cap. Included in that classification are debt-issuance costs, commitment fees, and some hedging gains and losses.
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