Under the Tax Cuts and Jobs Act of 2017, the new Section 163(j) generally limits a taxpayer’s deduction of any business interest expense to 30% of the taxpayer’s adjusted taxable income (ATI) plus the taxpayer’s business interest income. However, certain real estate and farming businesses are permitted to make an irrevocable election to avoid the application of the Section 163(j) limitation. The trade-off is that if a taxpayer makes an election, the taxpayer is required to use the Alternative Depreciation System (ADS) cost-recovery lives for non-residential real property, residential rental property, and qualified improvement property. In addition to the longer cost-recovery lives, a taxpayer cannot claim bonus depreciation on any assets depreciated under the ADS method.
Read the full GT Alert here: “IRS Provides Procedural Relief to Real Estate Businesses with Respect to Their Interest Deduction Limitation.”