BUSINESS INTEREST LIMITATION FORM 8990, SECTION 163(J)

 

Ø  Interest expense is not fully deductible??😟

Ø  Yes, you heard it right!!👍

Ø  There is limitation on business interest expense, which is defined in section 163J

 

Ø  How is this reflected in tax return????🙋

 

Ø  Form 8990 is there for you, to answer all the questions

 

  

Ø  WHAT IS PURPOSE OF FORM 8990?

The purpose of Form 8990 is to figure the amount of business interest expense which is deductible as per section 163(j) and the amount to carry forward to the next year.

Ø  What is the limit of section 163 (j)?

As per Section 163(J) the business interest expense is limited to sum of:

·       The interest income of taxpayer for the tax year for which the taxpayer is claiming the deduction (not including investment income).

·       30% of the taxpayer’s adjusted taxable income (ATI), but not less than zero.

·       the taxpayer’s floor plan financing interest.

The amount of interest that is disallowed is carried forward to the following year as a disallowed business interest expense carry forward.

ADJUSTED TAXABLE INCOME

              ATI is computed by adding and subtracting the following items from tentative taxable                    income:

·       income, gain, deduction, or loss that is not properly allocable to a trade or business.

·       business interest income, business interest expense (other than disallowed business interest expense carry forwards), and floor plan financing interest expense;

·       net operating loss (NOL) deduction (including NOLs arising in tax years before 2018 and carried forward to the current tax year)

·       qualified business income (QBI) deduction allowed under IRC §199A;

·       for tax years beginning before January 1, 2022, deductions for depreciations, amortization, or depletion attributable to a trade or business (including bonus depreciation);

·       capital loss carry back or carryover deductions; and

·       specified deemed inclusions by a U.S. shareholder attributable to a controlled foreign corporation (CFC) under IRC §78, IRC §951(a), and IRC §951A(a) that are properly allocable to non-excepted trade or business of the U.S. shareholder

Ø  who must file form 8990?

·       A taxpayer (an individual, corporation, partnership, S corporation) with business interest expense, a disallowed business interest expense carry forward; or

·       current year or prior year excess business interest expense must generally file Form 8990 unless an exclusion from filing applies.

Ø  Who are excluded from filing form 8990?

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.

·       If it only has interest expense from one or more of these excepted trades or businesses:

o    The trade or business of providing services as an employee,

o    An electing real property trade or business,

o    An electing farming business, or

o    Certain regulated utility businesses

 

 

Compiled by:

Ca. harsimran kaur