IRS Provides Guidance on Section 163(J) Election

The IRS has recently issued Rev. Proc. 2020-22 which, among other things, provides guidance on the Section 163(j)(7)(B) election to be an electing real property trade or business (and the Section 163(j)(7)(C) election to be an electing farming business) for purposes of the business interest expense limitation rules.

Specifically, taxpayers can make a late election, or withdraw an election, on an amended federal income tax return, an amended Form 1065, or an administrative adjustment request under IRC Sec. 6227.

In addition, the IRS has issued guidance on the following three elections which we were part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act):

  1. Electing out of the 50% Adjusted Taxable Income (ATI) limitation for tax years beginning in 2019 and 2020,
  2. Electing to use the taxpayer’s ATI for 2019 to calculate the Section 163(j) limit for 2020, and
  3. Electing out of deducting 50% of excess business interest expense for tax years beginning in 2020 without limitation.

Frank L. Leffingwell is a tax attorney in the firm’s Tax Planning & Controversy, Estate Planning, Probate & Trusts, and Real Estate sections.