David Hasen : Interest Deductibility Under the Income Tax (October 2021)

David Hasen, of UF Levin College of Law, has made available for download his article, “Interest Deductibility Under the Income Tax.” The abstract is as follows:

The tax treatment of interest expense is something of a muddle. In the earliest
years of the income tax, interest expense generally was deductible, though borrowing
was relatively uncommon and most of the borrowing that did occur was for business
purposes. Since that time, the rules have fluctuated considerably as borrowing also
has become more commonplace. Congress has sometimes limited the deduction for
interest paid on debt to finance personal consumption (“personal interest expense,” or
PIE) and sometimes expanded it, though more recently Congress has confined the
deduction for PIE to “qualified residence interest” and some interest paid on student
loans. Relatedly, Congress has imposed varying limitations on deductions for interest
paid for other kinds of borrowing, such as debt incurred to finance investment
activity, debt incurred in connection with certain “passive activities” and activity
not “at risk,” and debt incurred to finance the purchase or carrying of bonds that
generate interest excluded from gross income. Most recently, Congress has placed
substantial limitations on the deductibility of business interest expense (BIE) for
certain highly-leveraged taxpayers.

Click here to view David Hasen’s summary of “Interest Deductibility Under the Income Tax”.

Posted by Isabella King, Associate Editor, Wealth Strategies Journal.

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