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Overview
This article provides information about how UltraTax/1120 calculates Form 8990, Limitation on Business Interest Expense Under Section 163(j).
Section 163(j)
IRC section 163(j) was amended under the 2017 Tax Cuts and Jobs Act (TCJA) to reflect a new limitation on the deduction for business interest expense for certain taxpayers in tax years beginning after 2017. Visit this IRS resource for answers to common questions surrounding this new limitation: Basic questions and answers about the limitation on the deduction for business interest expense . (What's this?)
Form 8990
The new section 163(j) business interest expense deduction and carryover amounts are reported on Form 8990. The form calculates the section 163(j) limitation on business interest expense in coordination with other limits.
Business interest income
Business interest income is one of the factors in determining the amount of allowable business interest expense.
The Interest income fields on Screen Inc and Screen K are presumed to be portfolio income, which is not the same as business interest income. You will need to enter the corporation’s business interest income in Screen 8990 to properly calculate the allowable business interest expense.
Business interest expense
Enter business interest expense, not including floor plan financing interest, in the Business interest expense subject to limitation field in Screens Inc, F-2, 4835-2, and/or Rent. UltraTax/1120 sums the amounts entered in those fields and transfers the total to Form 8990, line 1.
Disallowed interest expense
The interest expense limitation is calculated at the consolidated level, so preparing Schedule M-3 in the consolidated return may cause the return to be out of balance. Based on the Schedule M-3 instructions, an adjustment made at the consolidated level that is not attributable to any specific member should be reported on the consolidated Schedule M-3 and the eliminations client Schedule M-3.
How to include the disallowed interest expense in the Schedule M-3 in the eliminations client
Filing Form 8990 for a foreign corporation
Enter business interest expense, allocable to effectively connected income (ECI) under Regulation 1.882-5, in the Business interest expense subject to limitation field in Screen IntDed in the 1120F folder. The amount entered in this field should also be adjusted for any capitalizations, deferrals and disallowances that apply before the section 163(j) interest expense limitation.
UltraTax/1120 transfers the amount entered in this field to Form 8990, line 1.
Calculating adjusted taxable income
Perform the following steps to force the application to calculate taxable income, as well as other amounts for Form 8990.
If you change, add, or remove any data after performing these steps, you will need to repeat the process to capture the updated information.
- Complete all data entry in the return.
- Enter 1 in the Use calculated amounts on Form 8990 field on Screen 8990.
- Choose View > Form, or print preview the return.
- Enter 2 in the Use calculated amounts on Form 8990 field on Screen 8990.
Once you complete these steps, the application calculates the following amounts as if the business interest expense was deducted in full.
- Net operating loss
- Taxable income
- Depreciation, amortization, and depletion
- Amount of loss, deduction, income, or gain items from a pass-through entity
- Capital loss carryover or carryback
Exceptions for filing Form 8990
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