July 28, 2020
BREAKING TAX NEWS | IRS releases highly anticipated final and proposed regulations on IRC Section 163(j) limits on business interest expense deductions, along with related guidance
Today, the Treasury Department released final regulations (TD 9905) (the Final Regulations) and proposed regulations (REG-107911-18) (the Proposed Regulations) with guidance on the business interest expense limitation under IRC Section 163(j) (the Section 163(j) Limitation). The Section 163(j) Limitation was modified in December 2017 by the Tax Cuts and Jobs Act (TCJA), and in March 2020 by the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act).
With the regulations, the IRS issued Notice 2020-59, which creates a safe harbor allowing taxpayers that manage or operate qualified residential living facilities to be treated as a real property trade or business solely for purposes of qualifying as an electing real property trade or business. It also released FAQs on the aggregation rules that apply for purposes of the gross receipts test and determining whether a taxpayer is a small business exempt from the IRC Section 163(j) deduction.
The Final Regulations provide guidance on:
Significant changes in the final regulations, as compared to the former proposed regulations, include:
The Final Regulations apply to the first tax year beginning 60 days after the final regulations are published in the Federal Register (i.e., January 1, 2021, for calendar-year taxpayers). An anti-avoidance rule applies to transactions entered on or after the date the Final Regulations are published in the Federal Register. Taxpayers may apply the Final Regulations to tax years beginning after December 31, 2017, so long as they consistently apply all of the Final Regulations.
The Proposed Regulations:
The Proposed Regulations generally are not retroactive, though taxpayers may choose to apply them to tax years beginning after December 31, 2017.
Tax Alerts on this guidance are forthcoming.