Treasury and IRS Release Final and Proposed Regulations under Section 163(j)

On July 28, the Department of the Treasury and the Internal Revenue Service released final and proposed regulations under section 163(j). Amended by the Tax Cuts and Jobs Act (TCJA), section 163(j) generally limits a taxpayer’s interest deduction to the sum of its business interest income, floor plan financing interest, and 30% of its adjusted taxable income. The provision was further amended by the Coronavirus Aid, Relief, and Economic Security (CARES) Act in 2020 to allow taxpayers to deduct up to 50% of their adjusted taxable income (up from 30%), plus interest income and floor plan financing income, for taxable years beginning in either 2019 or 2020.

The final regulations finalize prior proposed regulations that were issued on December 28, 2018, and include guidance with respect to the amendments to section 163(j) by both the TJCA and the CARES Act. The new proposed regulations provide additional guidance, such as the application of section 163(j) to US shareholders of controlled foreign corporations.

Additionally, the IRS released Notice 2020-59 with the final and proposed regulations. Notice 2020-59 provides a safe harbor under which a qualified residential living facility is treated as eligible to be an electing real property trade or business under section 163(j)(7)(b).

Read More: Final Regulations
Read More: Proposed Regulations
Read More: Notice 2020-59