IRS Offers Business Interest Expense Limit Guidance

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In Notice 2018-28, issued earlier this week, the IRS offered guidance in computing business interest expense limits under the new tax law.

Section 163(j) of the Internal Revenue Code, amended under the new law, limits deductions for business interest incurred by certain large businesses. For most large businesses, business interest expense is limited to any business interest income plus 30% of the business’ adjusted taxable income.

Before regulations are issued, taxpayers can rely on the rules described in Sections 3 – 7 in the notice.

The notice describes the following regulations that the IRS intends to release:

  • Rules addressing the calculation of the business interest expense limitation at the level of a consolidated group of corporations and other rules to clarify aspects of the law as it applies to corporations;
  • Partnerships and S corporation shareholders cannot interpret the amended Section 163(j) to inappropriately “double count” the business interest income of those organizations.

The notice also clarifies how interest disallowed and carried forward under Section 163(j) prior to the new tax law is treated.

The notice requests comments on the rules and on what additional guidance should be provided to help taxpayers in computing the business interest expense limits under Section 163(j).

More guidance will be forthcoming.

About Terry Sheridan

Terry Sheridan

Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.

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