After tax cost of debt

Accounting Dictionary

After tax cost of debt

The after tax cost of debt is the interest a company paid minus the tax refund generated by deducting the interest on the company tax return.

Let’s say a company in the 33% tax bracket paid $18,000 of interest on a bank loan. The $18,000 is a tax deduction so the IRS would send the company a refund of $6000 (18,000 x .333). The $18,000 they paid minus the $6000 they received would be the true cost of the debt, $12,000. This is the after tax cost of debt.

Sign Up to Learn More!

Join our mailing list today to get notified of new discount offers, course updates, Roger CPA Review news, and more!