31 Jan 2023
Business Interest Expense Deduction Limitations for Partnerships and Their Partners
Transactions involving the disposition of partnership property or partnership interests can trigger rules that limit business interest expense deductions. Section 163(j) of the Internal Revenue Code generally limits the deductibility of a partnership’s business interest expense (BIE) to an amount equal to its business interest income (BII) and 30% of its adjusted taxable income (ATI). Many taxpayers may be familiar with the timing provision that allowed a beneficial addback (the “Addback”) to ATI for depreciation, depletion, and amortization (DD&A) during the 2018 through 2021 tax years. However, taxpayers may be less familiar with the requirement that ATI be reduced by the Addback if the partnership disposes of its property or a partner disposes of their partnership interest.
Related Content
- I.R.C. Section 163(j): Proposed and Final Regulations and CARES Act Modifications ExplainedLearn about the BIE deduction which is generally limited to the sum of a taxpayer's BII, 30% of ATI (50% under the CARES Act for taxable years beginning in 2019 and 2020) and floor-plan financing interest. Taxpayers use Form 8990, Limitation on BIE Under Section 163(j), to calculate and report their deduction and the amount of disallowed BIE that can be carried forward to the next taxable year.
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