Needless to say, COVID-19 has impacted the economic landscape of many businesses, across a wide array of industries, around the globe. As a result, many businesses have experienced increased risk and uncertainty about the future. This risk and uncertainty have caused many proposed and pending M&A transactions to be renegotiated, put on hold or terminated altogether.
COVID-19 has impacted every industry and changed the way millions of businesses operate around the globe. While it’s safe to say we have not seen a disruptor of this magnitude in our lifetime, past pandemics have also forced industries to innovate and adapt.
It’s hard to believe that over a year has gone by since the Tax Cuts and Jobs Act (TCJA) of 2017 was passed by Congress as one the most comprehensive changes to US taxation in over 30 years. The carried interest safe harbor, interest expense limitation and the corporate tax rate reduction are three of the most significant ways that the Tax Act has impacted private equity funds, their management companies and their portfolio companies.
It is imperative that an investor comprehend the deductibility of interest paid on portfolio loans before taking action in any investment opportunity. Investors who do not fully understand the tax law could potentially create a tax bill substantially higher than expected. Interest expense from portfolio loans raise many questions in this area.