Addendum to Sec. 163(j) Business Interest Expense Limitation Provided for in the CARES Act
April 16, 2020
- Although it is expected that the 50% ATI limitation will be favorable for most, taxpayers can elect out of the 50% ATI limitation for 2019 or 2020 by simply using the 30% ATI limitation on a timely filed return, including extensions. No formal statement is required. The election is annual, meaning it must be made for each taxable year. This election may be subsequently revoked by timely filing an amended return using the 50% ATI limitation.
- The election to use 2019 ATI for 2020 works under a similar approach. The election is made by using 2019 ATI on a timely filed return, including extensions. This election can also be revoked by timely amending to not use 2019 ATI. No formal statement is required to make or revoke the election.
- For partnerships, the election out of using the 50% ATI limitation is made by the partnership and is only available for 2020. The election to use 2019 ATI for 2020 is also an election made at the partnership level. Partners with disallowed business interest expense carryovers from 2019 who do not wish to deduct half of that carryover free of limitation in 2020 can elect out by not applying this provision on a timely filed return, including extensions. To revoke, a timely amended return must be filed to apply this rule.
- Real estate and farming businesses who previously elected to be exempted from the 163(j) limitation under the Tax Cuts and Jobs Act (TCJA) with the trade-off requirement to use the alternative depreciation system (ADS), may now withdraw that election. Previously this election was irrevocable. With the technical correction in the CARES Act to apply a 15-year life to Qualified Improvement Property (QIP) for which bonus depreciation may be claimed, it may be advantageous now for some taxpayers to change this election. A specific withdrawal statement is required to be filed with an amended return as outlined in the Revenue Procedure. A qualified taxpayer may also make a late real property trade or business or farming business election by filing an amended return with a late election statement.
If you have any questions on how these changes apply to your organization, please reach out to our team today.