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Final regulations on limiting business interest expense deductions under section 163(j)

Limiting business interest expense deductions

The IRS today posted to its website final regulations (T.D. 9943) as additional guidance regarding the limitation on the deduction for business interest expense under section 163(j).

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Read the final regulations [PDF 726 KB] (178 pages)

The 2017 tax law (Pub. L. No. 115-97)—the law that is also referred to as the “Tax Cuts and Jobs Act” (TCJA)—added new section 163(j) to the Code, that generally limits the amount of a taxpayer’s business interest deduction. Subsequently, the “Coronavirus Aid, Relief, and Economic Security Act” (CARES Act) (Pub. L. No. 116-136) made changes to the section 163(j) rules by temporarily loosening the interest deduction limitation.

Proposed regulations under section 163(j) were released by the IRS in July 2020 and then ultimately published in the Federal Register in early September 2020. Read KPMG’s initial analysis and guidance about the section 163(j) regulations: TaxNewsFlash

The preamble to today’s release states that the final regulations retain the same basic structure as the 2020 proposed regulations, with revisions that are described in the explanation.

The version of the final regulations posted by the IRS today includes the following statement:

This document has been submitted to the Office of the Federal Register (OFR) for publication and will be pending placement on public display at the OFR and publication in the Federal Register. The version of the final rule released today may vary slightly from the published document if minor editorial changes are made during the OFR review process. The document published in the Federal Register will be the official document.

The purpose of this report is to provide text of the final regulations.

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