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Rep. Hannah Kane files bill to allow deduction of business interest on Massachusetts returns
Summary
A bill filed Jan. 15 would amend Massachusetts tax law to prevent federal limitation under IRC section 163(j) from reducing the state deduction for business interest and set a transitional treatment for existing carryforwards beginning in tax year 2025.
A bill filed Jan. 15 by Representative Hannah Kane would change how Massachusetts treats business interest for state income tax purposes by excluding the federal limitation in section 163(j) of the Internal Revenue Code when determining the amount of business interest deductible under state law.
The legislation, House Bill No. 3155, would amend the definition of "Code" in chapter 62 and chapter 63 of the Massachusetts General Laws so that section 163(j) does not apply for the purpose of determining the state deduction for business interest. It also includes a transitional rule for existing carryforwards of disallowed business interest.
If enacted as written, the bill would: (1) strike and replace the definition of "Code" in chapter 62 to specify that, "for purposes of determining the amount of business interest deductible under this chapter, the provisions of section 163(j) of the Code shall not apply"; (2) replace the definition of "Code" in chapter 63 with a version that references the Internal Revenue Code as amended and in effect for the taxable year but contains a special rule for section 163(j) for certain periods; and (3) amend section 30 of chapter 63 to add a provision that, for tax years commencing on or after Jan. 1, 2025, disallows any deduction that would result from a carryforward of disallowed business interest expense under section 163(j) of the Code, while allowing existing carryforwards as of the tax year ending before Jan. 1, 2025, to be claimed in three equal parts over three consecutive years beginning with the first tax year commencing on or after Jan. 1, 2025.
The bill text notes a similar matter was filed in the previous session (House No. 2853 of 2023-2024) but does not include fiscal estimates, committee referrals, or any floor or committee actions. As filed, House Bill No. 3155 is a proposal; it has not been enacted and would require approval by the General Court and the governor before becoming law.
Why it matters: The bill would change how federal limits on interest deductions — commonly associated with the Internal Revenue Code's section 163(j) — affect state taxable income. That could alter the timing and amount of deductions that business taxpayers may claim on Massachusetts returns and could have implications for state revenue, though the bill does not include a revenue estimate in the filing.
Representative Hannah Kane of Shrewsbury (11th Worcester) is listed as the filing legislator on the petition accompanying the bill. The filing sets the effective date as "taxable years beginning on or after Jan. 1, 2025."
