Publish Date

Aug 28, 2020

The Slimmed Down Summer Version of the Limitation on Interest Deductions Regulations

Special Tax Alert

On July 28th, Treasury and the IRS released finalized regulations and a new set of proposed regulations (the 2020 proposed regulations) under section 163(j), TCJA’s limitation on the deduction of interest. The final regulations are generally consistent with the proposed regulations released in 2018 (the 2018 proposed regulations), which were discussed previously here. However, there are several noteworthy, mostly taxpayer-favorable, modifications. In addition, the 2020 proposed regulations allow taxpayers to revisit their past treatment of certain aspects of the interest expense deduction.

As discussed in greater detail in our prior alert, TCJA limited a taxpayer’s ability to deduct its business interest expense (interest expense that is properly allocable to a trade or business) by subjecting it to a new annual limitation (the section 163(j) limitation). This alert highlights several of the key changes from the 2018 proposed regulations in the final regulations, and discusses the 2020 proposed regulations, open questions, and choices taxpayers currently have in determining how to apply the section 163(j) limitation.

Specifically, the following topics are covered in this alert:

Applicability Dates Give Taxpayers Choices

Before going into what the final regulations and the 2020 proposed regulations provide, it is important to highlight that the applicability dates of the various regulatory packages provide taxpayers with options. The following table summarizes which regulations taxpayers can rely upon…