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IRS proposed limits on new business interest expense

The Internal Revenue Service proposed regulations implementing a provisions of the Tax Cuts and Jobs Act, which limits the business interest expense deduction for certain small businesses whose gross receipts are $25 million or less. 

How it works

For tax years beginning after Dec. 31, 2017, the deduction for business interest expense is generally limited to the sum of a taxpayer’s business interest income, 30% of adjusted taxable income and floor plan financing interest, the IRS explains.

Taxpayers will use new 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.

When applicable

The IRS explains that the limit does not apply to taxpayers whose average annual gross receipts are $25 million or less for the three prior tax years. This amount will be adjusted annually for inflation starting in 2019.

Other exclusions from the limit are certain trades or businesses, including performing services as an employee, electing real property trades or businesses, electing farming businesses and certain regulated public utilities. Taxpayers must elect to exempt a real property trade or business or a farming business from this limit.

Taxpayers may rely on the rules in the proposed regulations until final rules are published in the Federal Register. Comments must be received by the IRS within 60 days of publication in the Federal Register.

Read more: IRS issues proposed regulations on new business interest expense deduction limit

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Judy Vorndran can be reached at jvorndran@taxops.com or 720.227.0093. Follow Judy on LinkedIn.

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