Section 40-18-39.1
Business interest expense deduction limitations.
(a) For a tax year in which the business interest expense deduction of the taxpayer, or of any federal consolidated return group of which the taxpayer is a member, is not limited pursuant to 26 U.S.C. § 163(j) on the federal income tax return for the tax year, the taxpayer shall not be subject to a limitation on the taxpayer's business interest expense deduction other than the limitation provided in Section 40-18-35(b) for interest expense with a related member.
(b)(1) For a tax year in which the business interest expense deduction of the taxpayer, or of any federal consolidated return group of which the taxpayer is a member, is limited pursuant to 26 U.S.C. § 163(j) on the federal income tax return for the tax year, the taxpayer shall calculate the business interest expense deduction limitation under 26 U.S.C. § 163(j), for purposes of computing Alabama taxable income, on a separate-entity basis, or in the case of the members of an Alabama affiliated group, as defined in Section 40-18-39(b)(1), which files an Alabama consolidated return as defined in Section 40-18-39(b)(2), on the basis of the Alabama consolidated return group.
(2) The gross receipts test under 26 U.S.C. § 163(j)(3) shall apply to each separate entity which is subject to Alabama income tax, or in the case of an Alabama affiliated group, as defined in Section 40-18-39(b)(1), which files an Alabama consolidated return as defined in Section 40-18-39(b)(2), to the Alabama consolidated return group.
(3) The limitation provided in subsection (a) will apply before the application of the limitation provided in Section 40-18-35(b) for interest expense with a related member. For purposes of the limitation provided in Section 40-18-35(b), the net interest deduction limitation calculated under this subsection shall be allocated on a pro rata basis to the interest income recipients. Any resulting interest expense carryforward shall also be allocated on a pro rata basis to the interest income recipients. In any tax year in which a taxpayer deducts business interest expense on its federal tax return, or the tax return of the federal consolidated group of which it is a member, which was carried forward from a previous tax year and which is also subject to the add back provisions for interest expense with a related member under Section 40-18-35(b), the taxpayer shall apply Section 40-18-35(b) to the amount of the interest expense carried forward in addition to the amount accrued or incurred in the current tax year. Taxpayers that determine their business interest expense deduction pursuant to this subsection shall submit to the Department of Revenue the appropriate forms, schedules, and statements needed in order to confirm the business interest expense deduction was calculated correctly.
(4) A taxpayer with nonbusiness income or nonbusiness interest expense shall allocate nonbusiness interest expense to nonbusiness income and shall calculate a limit on the business interest expense deduction associated with nonbusiness income and nonbusiness interest expense on a pro rata basis. Nonbusiness interest expense shall be assigned to nonbusiness income and shall only be allowed to reduce nonbusiness income.
(Act 2021-1, §9.)