The Internal Revenue Service ("IRS") issued final regulations (PDF) regarding the provision of the TCJA limiting the deduction for business interest expense (the "deduction"), including basic statutory amendments made by the CARES Act.
For tax years beginning after December 31, 2017, business interest expense deductions are generally limited to the sum of:
- the taxpayer's business interest income;
- 30 percent (or 50 percent, as applicable) of the taxpayer's adjusted taxable income; &
- the taxpayer's floor plan financing interest expense.
The deduction limitation does not apply to certain small businesses whose gross receipts are $26 million or less, electing real property trades or businesses, electing farming businesses, and certain regulated public utilities. The $26 million gross receipts threshold applies for the 2020 tax year and will be adjusted annually for inflation.
Taxpayers use Form 8990, Limitation on Business Interest Expense Under Section 163(j), to calculate and report their deduction and the amount of disallowed business interest expense to carry forward to the next tax year.
Along with the final regulations, the IRS today issued the following additional items of guidance related to the business interest expense deduction limitation.
Proposed Regulations (PDF) that provide additional guidance on various business interest expense deduction limitation issues not addressed in the final regulations, including more complex issues related to the amendments made by the CARES Act. Subject to certain restrictions, taxpayers may rely on some of the rules in these proposed regulations until final regulations implementing the proposed regulations are published in the Federal Register.
Notice 2020-59 (PDF) contains a proposed revenue procedure that provides a safe harbor allowing taxpayers engaged in a trade or business that manages or operates qualified residential living facilities to treat such trade or business as a real property trade or business solely for purposes of qualifying as an electing real property trade or business.
FAQs Regarding the Aggregation Rules Under Section 448(c)(2) that Apply to the Section 163(j) Small Business Exemption provide a general overview of the aggregation rules that apply for purposes of the gross receipts test, and that apply to determine whether a taxpayer is a small business that is exempt from the business interest expense deduction limitation.
For any questions or assistance, please contact the Tax Attorneys at Fazzio Law, we are in your corner!
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