Appendix Thirty-Three

• Author: Brian C. Vertz and Mitchell E. Benson
• Pages: 616-620

Appendix Thirty-Three Divorce Taxation A-206

APPENDIX THIRTY-THREE

IRS Form 8990, Limitation on Business Interest Expense Under Section 163(j)

Instructions for Form 8990

(Rev. May 2020)

Limitation on Business Interest Expense Under Section 163(j)

Department of the Treasury

Internal Revenue Service

Section references are to the Internal Revenue

Code unless otherwise noted.

Future Developments

For the latest information about

developments related to Form 8990 and

its instructions, such as legislation

enacted after they were published, go to

IRS.gov/Form8990.

What’s New

Increased business interest expense.

The Coronavirus Aid, Relief, and

Economic Security Act (CARES Act)

retroactively increases the amount of

business interest expense that may be

deducted for tax years beginning in 2019

and 2020 by computing the section 163(j)

limitation using 50% of your adjusted

taxable income (ATI) instead of 30%. This

50% ATI limitation does not apply to

partnerships for tax years beginning in

2019. See section 163(j)(10)(A)(i).

Instead, a partner treats 50% of its

allocable share of a partnership’s excess

business interest expense for 2019 as an

interest deduction in the partner’s first tax

year beginning in 2020 without limitation.

The remaining 50% of such excess

business interest expense remains subject

to the section 163(j) limitation applicable

to excess business interest expense

carried forward at the partner level.

You may elect not to apply the 50% ATI

limitation to any tax year beginning in 2019

or 2020, and instead apply the 30% ATI

limitation. In the case of a partnership, the

election must be made by the partnership

and may be made only for tax years

beginning in 2020. Also, a partner may

elect not to deduct 50% of the 2019

excess business interest expense for tax

years beginning in 2020 without limitation.

You may elect to use the adjusted taxable

income for the last year beginning in 2019

to calculate the limitation for any taxable

year beginning in 2020. For more

information regarding the applicable

percentage and elections, see Applicable

percentage, later. Also, see Revenue

Procedure 2020-22, I.R.B. 745 available at

www.irs.gov/irb/2020-18_IRB#REV-

PROC-2020-22, for the time and manner

of making the elections described above.

General Instructions

Purpose of Form

Use Form 8990 to figure the amount of

business interest expense you can deduct

and the amount to carry forward to the

next year. For more information, see

Proposed Regulations sections 1.163(j)-1

through 1.163(j)-11.

Computation of section 163(j) limita-

tion. If section 163(j) applies to you, the

business interest expense deduction

allowed for the tax year is limited to the

sum of:

1. Business interest income,

2. Applicable percentage of the

adjusted taxable income, and

3. Floor plan financing interest

expense.

Carryforward of disallowed business

interest. The amount of any business

interest expense that is not allowed as a

deduction under section 163(j) for the tax

year is carried forward to the following

year as a disallowed business interest

expense carryforward. However, see

Special Rules for partnership treatment of

disallowed business interest expense,

later.

Who Must File

A taxpayer with business interest

expense; a disallowed business interest

expense carryforward; or current year or

prior year excess business interest

expense generally must file Form 8990,

unless an exclusion from filing applies.

A pass-through entity allocating excess

taxable income or excess business

interest income to its owners (that is, a

pass-through entity that is not a small

business taxpayer) must file Form 8990,

regardless of whether it has any interest

expense.

A taxpayer who is a U.S. shareholder of

an applicable controlled foreign

corporation (CFC) and such CFC has

business interest expense, a disallowed

business interest expense carryforward; or

is part of a CFC group election must

generally apply section 163(j) to each

CFC and attach a Form 8990 with each

Form 5471. See Proposed Regulations

section 1.163(j)-7(b).

Exclusions from filing. A taxpayer is not

required to file Form 8990 if the taxpayer

is a small business taxpayer and does not

have excess business interest expense

from a partnership. A taxpayer is also not

required to file Form 8990 if it only has

interest expense from these excepted

trades or businesses:

•The trade or business of providing

services as an employee,

•An electing real property trade or

business,

•An electing farming business, or

•Certain utility business.

If a pass-through entity is not required

to file Form 8990 because it is a small

business taxpayer, but a partner or

shareholder is required to file Form 8990,

the pass-through entity may be requested

to provide certain information so that the

partner or shareholder can complete their

return. See Ownership of pass-through

entities not subject to the section 163(j)

limitation, later.

Coordination With Other

Limitations

Categorization and allocation of inter-

est expense. Current year interest

expense must be categorized under

Temporary Regulations section 1.163-8T

(for example, as investment interest,

personal interest, or business interest)

before computing the section 163(j)

limitation on the deduction for business

interest expense. Only business interest

expense is subject to the section 163(j)

limitation.

For purposes of the section 163(j)

limitation only, business interest expense

refers to interest expense properly

allocable to trades or businesses that are

not excepted trades or businesses. See

Taxpayers with both excepted and

non-excepted trades or businesses, later,

for allocating interest expense between

excepted and non-excepted trades or

businesses before computing the section

163(j) limitation.

Interest expense limitations. An

expense that has been disallowed,

deferred, or capitalized in the current tax

year, or which has not yet been accrued,

is not taken into account for section 163(j)

purposes. Section 163(j) applies after any

basis limitation and before the operation of

the at-risk, passive activity loss, or excess

business loss limitations. See Proposed

Regulations section 1.163(j)-3 for

additional information on interactions of

section 163(j) with other code provisions.

Jun 16, 2020 Cat. No. 71420E

APPENDIX THIRTY-THREE