IRS headquarters in Washington. (Photo: Bloomberg) IRS headquarters in Washington. (Photo: Bloomberg)

The Internal Revenue Service issued final regulations Tuesday regarding the provision of the 2017 tax overhaul that limits the deduction for business interest expenses, including basic statutory amendments made by the Coronavirus Aid, Relief and Economic Security (CARES) Act.

For tax years beginning after Dec. 31, 2017, business interest expense deductions are generally limited to the sum of:

  • the taxpayer’s business interest income;
  • 30% (or 50%, as applicable) of the taxpayer’s adjusted taxable income; and
  • the taxpayer’s floor plan financing interest expense.

“The business interest expense 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 IRS explains. “The $26 million gross receipts threshold applies for the 2020 tax year and will be adjusted annually for inflation.”

A real property trade or business or a farming business may elect to be excepted from the business interest expense limitation, the IRS states. However, taxpayers cannot claim the additional first-year depreciation deduction for certain types of property held by the electing trade or business.

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.

The IRS also issued on Tuesday Notice 2020-59, which contains a proposal aimed at taxpayers who manage or operate qualified residential living facilities. Comments on the proposed revenue procedure are due by Sept. 28.

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