163(j) Limitations

Are You Reaching Your Limit For Business Interest Deductions?

The Tax Cuts and Jobs Act (TCJA) further limited the amount of business interest expense that can be claimed in any given year. This provision also received subsequent modification by the CARES Act, passed in March 2020 as a result of the COVID-19 pandemic. Understanding the impact this provision may have on you can be convoluted, complicated, and could involve modeling to ensure that unintended tax consequences are mitigated.

Having a full understanding of the portfolio of entities and potential grouping requirements or options, if there are any tax shelter considerations – especially if there could be a change year over year (this could happen if you are a partnership and have losses flowing to passive investors and income in another year), or what may be most advantageous if you are in real estate between expensing your interest or slowing down depreciation is crucial to mitigating the negative impact of this provision.

Making sure that you have a grasp on this concept and how it could impact planning and future tax liabilities is crucial. The interconnected aspect of this provision with other areas of the code coupled with various elections that could be made can make this a complicated and confusing area; sure to trip-up the unaware and uninformed taxpayer.

**The Consolidated Appropriations legislation clarified the recovery period for residential rental properties electing out of the business interest limitations of 163(j) to receive a recovery period of 30-years under the ADS methodology for property placed in service after December 31, 2017. In addition, Rev. Proc. 2021-9 was released, providing a safe harbor for businesses operating qualified residential living facilities to be treated as a real property trade or business for making the business interest limitation election under 163(j).

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Julie Helms, CPA | Director, Specialty Tax Services

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Lurie’s Specialty Tax Services advisors offer unique tax savings and reduction strategies for businesses and their tax concerns. The team works closely with you and your service partners to provide counsel and execution on matters that extend far beyond compliance. This close collaboration provides not only coordinated, seamless service with specialists who have deep expertise, but also delivers true dollar cost savings. Here is what to expect: 

We Examine Your Indicators

Subject to the interest expense limitations

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Review of current state to identify options to mitigate limitations

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