Section 163(j) Interest Deduction Limitations Under OBBBA: New IRS Guidance, State Tax Issues, Partnerships, CFC

This CLE/CPE course will address Section 163(j) interest deduction limitations under the One Big Beautiful Bill Act (OBBBA) and new IRS guidance. The panel will discuss the impact of OBBBA amendments to Section 163(j) on partnerships and CFCs, the rules for computing ATI and determining the deduction cap, special carryover and transition rules, and elections and exemptions, as well as offer methods to ensure tax savings.

Section 163(j) limitations on business interest deductibility create significant tax consequences for many partnerships. This broad business interest limitation rule applies to all taxpayers, with limited exceptions, reducing a taxpayer's ability to deduct interest expenses, and has been amended further under OBBBA. Tax advisers to partnerships need a clear understanding of the impact of these rules limiting deductibility and regulations to avoid unanticipated tax costs.

Under Section 163(j), a taxpayer cannot deduct business interest expense for a taxable year to the extent that the interest expense exceeds the sum of:

• the taxpayer's business interest income for the taxable year;
• 30% of the taxpayer's ATI for the taxable year, or zero if the taxpayer's ATI for the taxable year is less than zero; and,
• the taxpayer's floor plan financing interest expense for the taxable year (this relates mostly to car and boat dealers).

Under OBBBA, the computation of ATI now includes depreciation, amortization, and depletion, revises the ordering rules for applying Section 163(j), excludes CFC Income from ATI calculation, and includes other key amendments.

Tax professionals must understand how the modifications of Section 163(j) under OBBBA impact tax liability and planning options for taxpayers.

Listen as our panel discusses the impact of OBBBA amendments to Section 163(j) on partnerships and CFCs, the rules for computing ATI and determining the deduction cap, special carryover and transition rules, and elections and exemptions, as well as offers methods to ensure tax savings.