Excess Business Interest Expense

163 j for tax years beginning after Dec.

Excess business interest expense. Any business interest expense that is disallowed is passed to the partners and is suspended at the partner level under the TCJA rules. Business interest expense includes any interest paid or accrued on indebtedness properly allocable to a trade or business. Most practitioners assumed that this interest expense stayed trapped at the upper-tier and was not allocated to its partners.

This conclusion is confirmed in the new proposed regulations. 30 of adjusted taxable income ATI for the year or zero if the taxpayers ATI is less than zero. Clients can elect to use their 2019 ATI in computing the 2020 limit.

EBIE doesnt immediately become part of a partner-level section 163 j calculation. 115-97 and amended by the Coronavirus Aid Relief and Economic Security CARES Act PL. If the S corporation is required to file Form 8990 Limitation on Business Interest Expense Under Section 163j it may determine it has excess business interest income.

In response to comments that the 11-step computation for allocating deductible business interest expense excess taxable income excess business interest income and excess business interest expense among partners was too complex the IRS and Treasury reiterate that they provided a worksheet and multiple examples to aid in the completion of the. The limitation applies at the S corporation level and any excess business interest expense is carried over at the corporate level. Any business interest expense of the partnership that is disallowed upon application of the section 163 j limitation is allocated to each partner in the same manner as the non-separately stated taxable income or loss of the partnership.

One key area of uncertainty was what happens to excess business interest expense allocated from a lower-tier partnership to an upper-tier partnership. For tax years beginning after 2017 the deduction for business interest expense cannot exceed the sum of the taxpayers. As amended by the CARES Act the 30 percent is 50 percent for 2019 and 2020.

Excess business interest expense is only applicable to partnerships subject to section 163j. The limitation is determined at the entity level for partnerships and S corporations. Any business interest expense that exceeds the new Section 163 j limit is carried forward indefinitely.