Question

In the current year, Tern, Inc., a calendar year C corporation, has $9 million of adjusted taxable income, $300,000 of business interest income, zero floor plan financing interest, and $3.2 million of business interest expense. Tern has average gross receipts for the prior three-year period of $45 million. Which of the following statements is correct about the treatment of Tern's business interest expense?

Group of answer choices

Current year deduction of $3 million, carryback of $200,000.

Current year deduction of $2,790,000, carryback of $410,000.

Current year deduction of $3 million, carryforward of $200,000.

Current year deduction of $3.2 million.

Current year deduction of $2,790,000, carryforward of $410,000.

Answer 1

Tern, Inc. can deduct a portion of its business interest expense based on its adjusted taxable income. The deduction is limited to 30% of adjusted taxable income (ATI) for the current year. In this case, the current year deduction for Tern's business interest expense would be $2.7 million (30% of $9 million).

Step-by-step explanation:

Tern, Inc., a calendar year C corporation, can deduct a portion of its business interest expense based on its adjusted taxable income. The deduction is limited to 30% of adjusted taxable income (ATI) for the current year. In this case, we have $9 million of ATI (adjusted taxable income) and $3.2 million of business interest expense. So, the current year deduction for Tern's business interest expense would be $2.7 million (30% of $9 million).

There is no mention of carryback or carryforward in the given information, so we can assume no carryback or carryforward is available. Therefore, the correct answer is the option: Current year deduction of $2,790,000, carryforward of $410,000.

Answer 2

correct option is Current year deduction of $3 million, carry forward of $200,000.

Step-by-step explanation:

given data

adjusted taxable income = $9

business interest income = $300,000

business interest expense = $3.2 million

average gross receipts = $45 million

solution

correct answer is Current year deduction of $3 million, carry

forward of $200,000. because Business interest deduction limitation

as here Business Interest Income is $300000

plus + 30% of $9m

that is = $2700000

so here current year total deduction = $3000000

and Remaining will be allowed next year is $200,000