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Section 163(j) interest expense deduction limitations, elections for real property trade, farming businesses

Section 163(j) interest expense deduction limitations

The IRS this afternoon released an advance version of Rev. Proc. 2020-22 as guidance for purposes of the business interest expense deduction limitation under section 163(j):


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  • The election under section 163(j)(7)(B) to be an electing real property trade or business
  • The election under section 163(j)(7)(C) to be an electing farming business

Rev. Proc. 2020-22 [PDF 54 KB] allows certain taxpayers to make a late election—or to withdraw an election—under section 163(j)(7)(B) or 163(j)(7)(C) on an amended federal income tax return, an amended Form 1065, or an administrative adjustment request (AAR) under section 6227.

The revenue procedure reflects recent changes made to section 163(j)(10) by Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (Pub. L. No. 116-136).

Rev. Proc. 2020-22 describes the time and manner in which certain taxpayers can elect:

  • Out of the 50% adjusted taxable income (ATI) limitation for tax years beginning in 2019 and 2020
  • To use the taxpayer’s ATI for the last tax year beginning in 2019 to calculate the taxpayer’s section 163(j) limitation for tax year 2020
  • Out of deducting 50% of excess business interest expense for tax years beginning in 2020 without limitation

The purpose of this report is to provide text of the revenue procedure.

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