Stocks to Sell Under Trump’s New Tax Law

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Stocks to Sell Under Trump’s New Tax Law


It seems like most U.S. financial media cannot quit gushing about the new tax laws. The coverage is universally positive – I’m waiting to hear that the tax cut will cure the common cold.

However, the media ignores the fact that some companies will end up paying higher tax bills. All thanks to the provision in the law that limits deductions on interest payments.

The law limits deductions for interest payments to 30% of EBITDA earnings (earnings before interest, tax, depreciation and amortization) between 2018 and 2021. The restriction become even tighter from 2022 onward with deductions limited to 30% of earnings before interest and taxes.

This is a major negative for any companies with a heavy debt load.

As David Fann, CEO of the private equity advisory firm Torrey Cove Capital Partners LLC, told Reuters, “It [the new tax law] is a deviation from what has been allowed in the last 50 years. This is a radical change.”

Big Effects

The new restrictions on interest deductibility will mean that companies that have EBITDA less than double their interest payments will see “little or no benefit” from the tax reform package, according to Standard & Poor’s, the credit rating agency.