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Department of the Treasury
Internal Revenue Service
Instructions for Form 8990

(Rev. December 2021)

(Use with the May 2020 revision of Form 8990)
Limitation on Business Interest Expense Under Section 163(j)

Section references are to the Internal Revenue Computation of section 163(j) limita- Exclusions from filing. A taxpayer is not
Code unless otherwise noted.
tion. If section 163(j) applies to you, the required to file Form 8990 if the taxpayer
business interest expense deduction is a small business taxpayer and does not
Future Developments allowed for the tax year is limited to the have excess business interest expense
For the latest information about sum of: from a partnership. A taxpayer is also not
developments related to Form 8990 and 1. Business interest income, required to file Form 8990 if it only has
interest expense from one or more of
its instructions, such as legislation 2. Applicable percentage of the these excepted trades or businesses:
enacted after they were published, go to adjusted taxable income (ATI), and The trade or business of providing
IRS.gov/Form8990. •
3. Floor plan financing interest services as an employee,
expense. • An electing real property trade or
What’s New business,
Form 8990. Form 8990 is not being Carryforward of disallowed business • An electing farming business, or
revised. Continue to use the May 2020 interest. The amount of any business • Certain regulated utility businesses.
revision of the Form 8990 with these interest expense that is not allowed as a
updated instructions. The May 2020 deduction under section 163(j) for the tax If a pass-through entity is not required
revision of Form 8990 uses the term year is carried forward to the following to file Form 8990 because it is a small
"taxable income" to refer to amounts year as a disallowed business interest business taxpayer, but a partner or
described in these instructions as expense carryforward. However, see shareholder is required to file Form 8990,
"tentative taxable income." Please refer to Special Rules for partnership treatment of the pass-through entity is required, upon
these instructions for updated terms. disallowed business interest expense and request by the partner or shareholder, to
pre-group disallowed business interest provide certain information so that the
Final and proposed regulations. On expense carryforwards of an applicable partner or shareholder can complete their
September 14, 2020, the IRS published controlled foreign corporation (CFC), later. return. See Ownership of pass-through
final regulations (T.D. 9905) (2020 Final entities not subject to the section 163(j)
limitation, later.
Regulations) and proposed regulations Who Must File
(85 FR 56846) (2020 Proposed
Regulations). On January 19, 2021, the A taxpayer (including, for example, an Coordination With Other
IRS published additional final regulations individual, corporation, partnership, S
(T.D. 9943) (2021 Final Regulations). A corporation) with business interest Limitations
taxpayer may generally apply the 2020 expense; a disallowed business interest Categorization and allocation of inter-
Final Regulations for taxable years expense carryforward; or current year or est expense. Current year interest
beginning after December 31, 2017, so prior year excess business interest expense must be categorized under
long as the taxpayer and its related parties expense generally must file Form 8990, Temporary Regulations section 1.163-8T
consistently apply all of the rules of the unless an exclusion from filing applies. (for example, as investment interest,
personal interest, or business interest)
2020 Final Regulations. A taxpayer may A pass-through entity allocating excess before computing the section 163(j)
generally apply the 2021 Final Regulations taxable income or excess business limitation on the deduction for business
for taxable years beginning after interest income to its owners must file interest expense. Also, see Proposed
December 31, 2017, so long as the Form 8990, regardless of whether it has Regulations section 1.163-14 for rules on
taxpayer and its related parties any interest expense. allocating interest expense associated
consistently apply the 2020 Final
Regulations and the 2021 Final A regulated investment company that with debt proceeds for pass-through
Regulations. Collectively, the 2020 and pays section 163(j) interest dividends (see entities. Only business interest expense is
2021 Final Regulations are referred to as Regulations sections 1.163(j)-1(b)(22)(iii) subject to the section 163(j) limitation.
the Regulations in these instructions. See (F) and 1.163(j)-1(b)(35)) must file Form For purposes of the section 163(j)
the 2020 Proposed Regulations for 8990. limitation only, business interest expense
information on reliance. refers to interest expense properly
A taxpayer who is a U.S. shareholder of allocable to trades or businesses that are
an applicable CFC that has business not excepted trades or businesses. See
General Instructions interest expense, disallowed business Taxpayers with both excepted and
interest expense carryforward, or is part of non-excepted trades or businesses, later,
Purpose of Form a CFC group must generally apply section for allocating interest expense between
Use Form 8990 to figure the amount of 163(j) to each applicable CFC and attach excepted and non-excepted trades or
business interest expense you can deduct a Form 8990 with each Form 5471. See businesses before computing the section
and the amount to carry forward to the Regulations section 1.163(j)-7(b). 163(j) limitation.
next year. For more information, see
Regulations sections 1.163(j)-1 through A specified group parent of a CFC Interest expense limitations. An
1.163(j)-11. group must also file an additional Form expense that has been disallowed,
8990 to report the combined limitation of deferred, or capitalized in the current tax
all CFC group members. year, or which has not yet been accrued,

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is not taken into account for section 163(j) 1. Adding the gross receipts for the 3 the receipts of more than one taxpayer.
purposes. Section 163(j) applies after any prior tax years, and For this purpose, all members of a
basis limitation and before the operation of 2. Dividing the total by 3. controlled group of corporations (as
the at-risk, passive activity loss, or excess defined in section 52(a)), and all members
business loss limitations. See Regulations In the case of any taxpayer, which is of a group of businesses under common
section 1.163(j)-3 for additional not a corporation or a partnership, and control (as defined in section 52(b)), are
information on interactions of section except as provided below, the gross treated as a single person; and all
163(j) with other code provisions relating receipts test is applied in the same members of an affiliated service group (as
to interest expense. manner as if such taxpayer were a defined in sections 414(m) and (o)) shall
If a taxpayer’s deduction for business corporation or a partnership. be treated as a single person. If you and a
interest expense is limited under section Gross receipts for any tax year must be partnership or S corporation in which you
163(j) and such taxpayer has more than reduced by returns and allowances made hold an interest are treated as a single
one business activity for purposes of during the year. For individuals and for person for purposes of the gross receipts
either the at-risk (section 465) or passive section 163(j) only, gross receipts do not test, aggregate the partnership’s or S
activity loss (section 469) limitation include inherently personal amounts such corporation’s gross receipts with your
provisions, then the section 163(j) as disability benefits, social security gross receipts. Do not duplicate amounts
limitation will apply to the overall business benefits, and wages received as an by also including a share of partnership or
interest expense from all the business employee and reported on Form W-2. S corporation gross receipts as your own
activities of the taxpayer. The proportion of For section 163(j), a taxpayer with an gross receipts.
each activity’s business interest expense ownership interest in a partnership or S For more information, see Average
that is disallowed is the same proportion corporation must include a share of the Annual Gross Receipts Worksheet Per
as the disallowed business interest partnership’s or S corporation’s gross Section 448(c), later.
expense over the total business interest receipts, in proportion to the partner’s Also see FAQs Regarding the
expense. See Regulations section distributive share or S corporation’s pro Aggregation Rules at irs.gov.
1.163(j)-3(c) example 4 and Temporary rata share of gross income, unless the
Regulations section 1.163-8T. partner and partnership, or S corporation Tax shelter election. A taxpayer that is a
Partner basis limitations. Deductible shareholder and S corporation, are treated tax shelter as defined in section 448(d)(3)
business interest expense and excess as a single person. In that case, see Gross is not permitted to use the small business
business interest expense are subject to receipts aggregation for members of a exemptions contained in section 163(j)(3).
section 704(d) loss limitation rules. See controlled group, businesses under Under section 448(d)(3), a taxpayer that is
Regulations section 1.163(j)-6(h)(1) and common control, or members of an a “syndicate” is considered to be a tax
(2). affiliated group, later. shelter. To determine whether a taxpayer
is a syndicate, the section 448 regulations
The gross receipts of an organization permit a taxpayer to make an annual
Definitions subject to tax under section 511 only election to use its allocations of income,
The definitions below are only for the includes gross receipts taken into account gain, loss, or deduction made in the
purposes of applying section 163(j). in determining its unrelated business immediately preceding tax year, instead of
taxable income. using its current year allocations. The
Small business taxpayer. A small election is made on a timely filed original
business taxpayer is not subject to the Note. Gross receipts must meet the return (including extensions) for the tax
section 163(j) limitation and is generally definition under section 448(c) and year for which it is made. It is only valid for
not required to file Form 8990. Temporary Regulations section that tax year and once made cannot be
A small business taxpayer is a taxpayer 1.448-1T(f)(2)(iv). revoked. See Regulations section
that is not a tax shelter (as defined in Any reference to your business gross 1.448-2(b)(2)(iii)(B)(2) in Treasury
section 448(d)(3)) and meets the gross receipts also includes a reference to the Decision 9942 for guidance on the time
receipts test, described below. A tax gross receipts of any predecessor of your and manner of making the annual election.
shelter is defined as: business. If your business was not in The regulations in Treasury Decision 9942
• Any enterprise other than a C existence for the entire 3-year period, are generally applicable for tax years
corporation offering ownership via base your average annual gross receipts beginning on or after January 5, 2021.
registered securities, on the period your business existed. Also, However, a taxpayer may apply these
• Any syndicate within the meaning of if your business had a tax year of less than regulations beginning after December 31,
section 1256(e)(3)(B) (see Regulations 12 months, your gross receipts must be 2017, and before January 5, 2021,
section 1.163(j)-2(d)(3)), or annualized by multiplying the gross provided that the taxpayer meets certain
• Any entity described in section 6662(d) receipts for the short period by 12 and requirements. See applicability dates of
(2)(C)(ii). dividing the result by the number of T.D. 9942.
A pass-through entity that is a small months in the short period.
Excepted trade or business. A trade or
business taxpayer does not allocate The prior period gross receipts must be business does not include:
excess taxable income, excess business annualized for any short period before • Performing services as an employee,
interest income, or excess business dividing by 3. • An electing real property trade or
interest to its owners. For assistance in preparing the business,
Gross receipts test. A taxpayer meets average annual gross receipts, see the • An electing farming business, or
the gross receipts test if the taxpayer has Average Annual Gross Receipts • Certain regulated utility businesses.
average annual gross receipts of $26 Worksheet Per Section 448(c), later. How to make an election and the effect
million or less for the 3 prior tax years. Gross receipts aggregation for of being an excepted trade or business
A taxpayer's average annual gross members of a controlled group, are discussed under Special Rules, later.
receipts for the 3 prior tax years is businesses under common control, or Electing real property trade or busi-
determined by: members of an affiliated group. For ness. A real property trade or business
section 163(j), gross receipts may include engaged in activities described in section

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469(c)(7) may elect to not be subject to If the trade or business does not qualify disallowed business interest expense
the section 163(j) limitation. See Elections as an automatically excepted regulated carryforwards from a prior year or excess
under Special Rules, later, for the effect of utility trade or business because its rates business interest expense from a prior
making an election. Real property trade or are not established or approved on a cost year.
business means any real property of service and rate of return basis, the See Regulations section 1.163(j)-1(b)
development, redevelopment, taxpayer may be able to elect that the (43) for more information.
construction, reconstruction, acquisition, trade or business be an excepted trade or
conversion, rental, operation, business. See Regulations section Adjusted taxable income (ATI). ATI
management, leasing, or brokerage trade 1.163(j)-1(b)(15)(iii)(A) regarding electing means tentative taxable income of the
or business. utility trades or businesses. Also, see taxpayer computed without regard to:
Elections under Special Rules, later, for • Any item of income, gain, deduction, or
Electing farming business. Farming loss, which is not properly allocable to a
the effect of making an election.
businesses (as defined in section 263A(e) trade or business (within the meaning of
(4)) and specified agricultural and Interest. In general, interest is any section 162);
horticultural cooperatives (as defined in amount that is paid, received, or accrued • Any business interest income or
section 199A(g)(4)) may elect to not be as compensation for the use or business interest expense;
subject to the section 163(j) limitation. See forbearance of money or that is treated as • The amount of any net operating loss
Elections under Special Rules, later, for interest under the Internal Revenue Code deduction under section 172;
the effect of making an election. A farming or the regulations thereunder. • The amount of any qualified business
business includes livestock, dairy, poultry, Regulations section 1.163(j)-1(b)(22) income allowed under section 199A (for
fish, fruit, nut, and truck farms. It also provides additional guidance on what purposes of determining ATI the section
includes plantations, ranches, ranges, and constitutes interest for purposes of section 199A deduction is determined without
orchards. A fish farm is an area where fish 163(j), including anti-avoidance rules and regard to section 163(j). Regulations
and other marine animals are grown or a list of other amounts treated as interest, section 1.163(j)-1(b)(43));
raised and artificially fed, protected, etc., such as certain amounts of bond premium, • For tax years beginning before 2022,
but it does not include an area where they factoring income, and section 163(j) any deduction allowable for depreciation,
are merely caught or harvested. A plant interest dividends from regulated amortization, or depletion attributable to a
nursery is a farm for purposes of investment companies. trade or business; and
deducting soil and water conservation • Adjustments described in published
expenses. Business interest income. Business
guidance.
interest income means the amount of
A specified agricultural or horticultural To determine ATI, tentative taxable
interest includible in the taxpayer’s gross
cooperative is a cooperative to which Part income is computed after applying other
income for the tax year, which is properly
I of subchapter T of the Internal Revenue sections limiting the deductibility of
allocable to a trade or business. Business
Code applies that manufactures, interest, such as sections 263A and 267,
interest income does not include
produces, grows, or extracts any as well as basis, at-risk and passive
investment income.
agricultural or horticultural product, or has activity loss limitations.
marketed agricultural or horticultural See C corporation business interest
products. expense and income, later. For any tax year beginning in 2020, you
may elect to use the ATI for the last year
Certain regulated utility businesses. Interest income that is allocable to an
beginning in 2019 to calculate your
Certain regulated utility trades or excepted trade or business is not treated
limitation. See Revenue Procedure
businesses are not subject to the section as business interest income.
2020-22, 2020-18 I.R.B. 745, available at
163(j) limitation. No election is required for Business interest expense. Business www.irs.gov/irb/2020-18_IRB#REV-
certain regulated utility businesses, interest expense means any interest paid PROC-2020-22, for the time and manner
meaning these trades or businesses are or accrued that is properly allocable to a of making the election.
automatically excepted from the limitation. trade or business. Business interest
Automatically excepted regulated expense, generally, does not include Any additions or subtractions from
taxable income in arriving at ATI
utilities are trades or businesses that investment interest or other personal CAUTION!
are limited to the amount by which
furnish or sell: interest. See Regulations section
the item affects taxable income.
• Electrical energy, water, or sewage 1.163-9T for a definition of personal
disposal services; interest. However, see C corporation Applicable percentage. The applicable
• Gas or steam through a local business interest expense and income, percentage is the percentage applied to
distribution system; or later. ATI for purposes of computing the
• Transportation of gas or steam by Interest expense that is allocable to an business interest expense limitation
pipeline. excepted trade or business is not treated calculation. The applicable percentage is
To be an automatically excepted as business interest expense. generally 30% (30% ATI limitation).
regulated utility trade or business, the Excess business interest expense. If a However, under the CARES Act, the
rates for furnishing or sale of the above partnership has a limitation on business applicable percentage for tax years
listed items must be established or interest expense, the disallowed business beginning in 2019 and 2020 is 50%,
approved by a state or political subdivision interest expense is not carried over by the instead of 30%, of your ATI (50% ATI
thereof, by any agency or instrumentality partnership, but is allocated to the limitation). The 50% ATI limitation does
of the United States, by a public service or partners. This interest is referred to as not apply to partnerships for tax years
public utility commission or other similar excess business interest expense. beginning in 2019. See section 163(j)(10)
body of any state or political subdivision (A)(i).
thereof, on a rate of return or cost of Tentative taxable income Tentative
service basis, or by the governing or taxable income is generally the same as You may elect not to apply the 50% ATI
rate-making body of an electric taxable income under section 63. limitation to any tax year beginning in 2019
cooperative. However, tentative taxable income is or 2020, and instead apply the 30% ATI
computed as if the section 163(j) limitation limitation. In the case of a partnership, the
does not exist; therefore, do not include election must be made by the partnership

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and may be made only for tax years Electing real property trade or busi- Consolidated group’s trade or busi-
beginning in 2020. Also, a partner may ness. An electing real property trade or ness. Only the name and taxpayer
elect not to deduct 50% of the 2019 business must use the ADS for any identification number (TIN) of the agent for
excess business interest expense for tax nonresidential real property, residential the group, as defined in Regulations
years beginning in 2020 without limitation. rental property, and qualified improvement section 1.1502-77, must be provided on
You may elect to use the ATI for the last property used in its trade or business. the election statement.
year beginning in 2019 to calculate the
limitation for any tax year beginning in Revenue Procedure 2021-9. Revenue Partnership’s trade or business. An
2020. Procedure 2021-9 provides a safe harbor election for a partnership must be made
that allows a taxpayer engaged in a trade on the partnership’s return with respect to
See Revenue Procedure 2020-22,
or business that manages or operates a any trade or business that the partnership
2020-18 I.R.B. 745, available at
residential living facility and that also conducts. An election by a partnership
www.irs.gov/irb/2020-18_IRB#REV-
provides certain supplemental assistive, does not apply to a trade or business
PROC-2020-22, for the time and manner
nursing, and other routine medical conducted by a partner outside the
of making the elections described above
services to treat such trade or business as partnership.
under the CARES Act.
a real property trade or business. See
Taxpayers with both excepted and
Floor plan financing interest expense. Revenue Procedure 2021-9 for additional
non-excepted trades or businesses.
Floor plan financing interest expense is information and requirements to qualify for
Taxpayers must allocate and apportion
not subject to the section 163(j) limitation. the safe harbor.
their interest expense, interest income,
Floor plan financing interest expense is
Electing farming business. An electing and other tax items between excepted and
interest on debt used to finance the
farming business must use the ADS for non-excepted trades or businesses,
acquisition of motor vehicles held for sale
any farming property the taxpayer owns applying the rules under Regulations
or lease where the debt is secured by the
with a recovery period of 10 years or section 1.163(j)-10. An asset basis
acquired inventory.
more. approach is generally used to allocate
Excess taxable income. In general, interest expense and interest income.
Regulated utility trade or business.
excess taxable income is the amount of a Regulations section 1.163(j)-10(c)
Automatically excepted utility trades or
partnership’s or S corporation’s ATI that is requires a taxpayer to attach a statement
businesses and electing utility trades or
in excess of the amount of ATI required to to its timely filed tax return, providing
businesses cannot claim the additional
support the partnership’s or S information related to the asset basis and
first-year depreciation deduction under
corporation’s business interest expense allocation determination as provided in
section 168(k) for any property that is
deduction. This amount is computed by a Regulations section 1.163(j)-10(c)(6)(iii).
primarily used in the excepted regulated
partnership or an S corporation and is
utility trade or business. Partnerships. If a partnership is subject
allocated to the partner or shareholder.
to the section 163(j) limitation, the section
This amount is used by the partner or Safe harbor for real estate investment
163(j) limitation is applied at the
shareholder in determining their current trust (REIT). Under certain
partnership level. If a partnership has
year ATI. circumstances, a REIT (and a partnership
deductible business interest expense,
controlled by one or more REITs) is
Excess business interest income. such deductible business interest expense
eligible to make an election to be a real
Excess business interest income is the is not subject to any further limitation
property trade or business. See
current year business interest income that under section 163(j) at the partner level.
Regulations section 1.163(j)-9(h).
exceeds current year business interest For all other purposes of the Code,
expense (excluding floor plan financing). How to make the election. To make an however, deductible business interest
This amount is computed by a partnership election for a real property, farming, or expense retains its character as business
or an S corporation and is allocated to the non-automatically excepted regulated interest expense at the partner level.
partner or shareholder. This amount is utility trade or business, attach an election If the partnership has a limitation on
used by the partner or shareholder in statement to a timely filed original tax business interest expense, the disallowed
determining their current year business return (including extensions). Once the business interest expense (excess
interest income. election is made, it is irrevocable. business interest expense) is not carried
The statement must be titled “Section over by the partnership, but is allocated to
Special Rules 1.163(j)-9 Election” (for real property or the partners.
Elections. A taxpayer engaged in a real farming businesses) or “Section After completing Form 8990, the
property trade or business, a farming 1.163(j)-1(b)(15)(iii) Election” (for an partnership must determine how the
business, or a non-automatically excepted electing utility trade or business), and deductible business interest expense,
regulated utility trade or business may must contain the following information for excess business interest expense, excess
elect not to limit business interest expense each electing trade or business: taxable income, and excess business
under section 163(j) for such trade or • The taxpayer’s name; interest income are allocated among the
business. This is an irrevocable election. • The taxpayer’s address; partners. Worksheet A—Determination of
• The taxpayer’s social security number Each Partner's Deductible Business
If the real property trade or business or (SSN) or employer identification number Interest Expense and Section 163(j)
farming business election is in effect, you (EIN); Excess Items and Worksheet
are required to use the alternative • A description of the taxpayer’s electing B—Determination of Each Partner's
depreciation system (ADS) for certain trade or business, including the principal Relevant Section 163(j) Items are to be
property. See Pub. 946, How To business activity code; and used to determine the amount of each
Depreciate Property. Also, you are not • A statement that the taxpayer is making item allocable to each partner. See
entitled to the special depreciation an election pursuant to section 163(j)(7) Regulations section 1.163(j)-6(f)(2) for
allowance for that property. For a taxpayer (B) (as an electing real property trade or additional information on the allocation.
with more than one qualifying business, business) or (C) (as an electing farming
the election is made with respect to each business), as applicable. Self-charged interest. See Regulations
trade or business. section 1.163(j)-6(n) for the treatment of
business interest income and business

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interest expense with respect to lending      pended under section 704(d) (“nega-          Any investment interest expense, 
transactions between a partnership and a      tive section 163(j) expense”).   See         investment interest income, or investment 
partner.                                      Regulations section 1.163(j)-6(h) for basis  expenses that a partnership pays, 
                                              adjustment calculations and ordering rules   receives, or accrues and allocates to a C 
Partner. A partner’s excess business 
                                              for losses under section 704(d).             corporation partner is treated by the C 
interest expense is treated as paid or 
                                                                                           corporation as properly allocable to a 
accrued by the partner in subsequent          Excess business interest expense in 
                                                                                           trade or business of that partner.
years to the extent the partner is allocated  tiered partnerships. See 2020 
current year excess taxable income or         Proposed Regulations section 1.163(j)-6(j)   Current year business interest expense 
excess business interest income from the      for treatment of excess business interest    is deducted before disallowed business 
same partnership.                             expense in tiered partnerships.              interest expense carryforwards, which are 
                                                                                           then deducted in the order of the year in 
  If a partner not subject to the section     S corporation.  The section 163(j)           which they were incurred, starting with the 
163(j) limitation has excess business         limitation is applied at the S corporation   earliest year, subject to certain limitations.
interest expense from a prior year and is     level. Disallowed business interest 
allocated excess taxable income or            expense is carried over by the S             Consolidated group.    A consolidated 
excess business interest income in the        corporation and is treated as business       group has a single section 163(j) 
current year, the partner would file Form     interest expense paid or accrued in the      limitation. A consolidated group files one 
8990 and the amount of excess business        following year.                              Form 8990. For members entering or 
interest expense treated as paid or                                                        leaving the group, see Regulations section 
                                                For a shareholder subject to the section 
accrued in the current year would not be                                                   1.163(j)-5 for applicable limitations.
                                              163(j) limitation, the shareholder’s current 
subject to further limitation under section 
                                              year section 163(j) limitation computation 
163(j). See Schedule A, Summary of                                                         Intercompany obligations.           All 
                                              will include the following amounts from 
Partner’s Section 163(j) Excess Items,                                                     intercompany obligations, as defined in 
                                              each of its S corporations:
later.                                                                                     Regulations section 1.1502-13(g)(2)(ii), 
                                              • Current year excess taxable income,        are disregarded for purposes of 
  A partner subject to the section 163(j)     and                                          determining a member’s business interest 
limitation will include the amount of excess  • Current year excess business interest      expense and business interest income 
business interest expense treated as paid     income.                                      and in figuring the consolidated group’s 
or accrued in figuring its current year                                                    ATI.
                                                These amounts will not include items 
business interest expense limitation.
                                              from an excepted trade or business.          Tax-exempt corporations with unrela-
  If both a partnership and a partner are 
subject to the section 163(j) limitation, the Ownership of pass-through entities           ted business income (UBI). The rule for 
partner’s current year business interest      not subject to the section 163(j) limita-    C corporation interest expense and 
expense limitation computation will           tion. If you are subject to the section      income applies to a corporation that is 
include the following amounts from each       163(j) limitation and are an owner of a      subject to the unrelated business income 
of its partnerships:                          pass-through entity that is not subject to   tax under section 511 only with respect to 
• Current year excess taxable income,         the section 163(j) limitation, your share of that corporation’s items of income, gain, 
• Excess business interest expense            the pass-through business interest           deduction, or loss that are taken into 
treated as paid or accrued, and               expense is not subject to the section        account in computing the corporation’s 
• Current year excess business interest       163(j) limitation, and your share of         unrelated business taxable income, as 
income.                                       non-excepted trade or business items of      defined in section 512.
                                              income, gain, loss, and deduction            Regulated investment companies 
  These amounts will not include items        (including business interest expense and     (RICs) and real estate investment 
from an excepted trade or business.           business interest income) of such            trusts (REITs). For special rules for 
  For a special rule regarding the            pass-through entity, if net positive, is     determining ATI for RICs and REITs, see 
treatment of excess business interest         included on line 13. You must request the    Regulations section 1.163(j)-4(b)(4). For a 
expense allocated to a partner in 2019,       pass-through entity to separately state, in  safe harbor for REITs (and partnerships 
see Line 43, column (d), later.               sufficient detail, the items necessary to    controlled by one or more REITs) making 
  If a partner is subject to the section      include on line 13.                          an election to be an electing real property 
163(j) limitation and the partnership is not,   In the event a partnership allocates       trade or business, see Regulations section 
see Ownership of pass-through entities        excess business interest expense to one      1.163(j)-9(h).
not subject to the section 163(j) limitation, or more of its partners, and in a later tax  Trading partnerships.  A trading 
later.                                        year the partnership is an exempt entity, 
                                                                                           partnership is required to bifurcate its 
  In the event a partner sells a              the excess business interest expense         interest expense from a trading activity 
partnership interest and the partnership in   from the prior year is treated as business 
                                                                                           between partners that materially 
which the interest is being sold owns only    interest expense paid or accrued by the      participate in the trading activity and 
non-excepted trade or business assets,        partner in the later year. See Regulations 
                                                                                           partners that do not materially participate. 
the gain or loss on the sale of the           section 1.163(j)-6(m)(3).                    Only the portion of the interest expense 
partnership interest is included in the       C corporation business interest ex-          that is allocable to the materially 
partner’s ATI. If the partnership interest    pense and income.   Solely for section       participating partners is subject to 
consists of both excepted and                 163(j), all interest paid or accrued (or     limitation under section 163(j) at the 
non-excepted assets, the partner may use      treated as paid or accrued) by a C           partnership level. In addition, the trading 
the method set forth in Regulations           corporation is business interest expense,    partnership is required to bifurcate all of its 
section 1.163(j)-10(c) to determine the       and all interest includible in gross income  other items of income, gain, loss, and 
amount properly allocable to a                by a C corporation is business interest      deduction from its trading activity allocable 
non-excepted trade or business and,           income, except to the extent such interest   to the partners that do not materially 
therefore, properly includible in the         expense or interest income is allocable to   participate. Such items are not taken into 
partner’s ATI.                                an excepted trade or business.               account at the partnership level as items 
Excess business interest expense                                                           from a trade or business for section 163(j), 
from a prior taxable year that was sus-

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but instead are treated as items from an     back to the functional currency of the CFC     interest expense is disallowed under the 
investment activity of the partnership.      group member’s specified taxable year          section 163(j) limitation. Attach the 
                                             using the average exchange rate for the        election statement described in 
Foreign persons with effectively con-
                                             CFC group member’s specified taxable           Regulations section 1.163(j)-7(h)(5), 
nected income (ECI). A nonresident 
                                             year, using any reasonable method,             together with a statement providing the 
alien individual or foreign corporation that 
                                             consistently applied. Only non-ECI             eligibility computation described in 
is not a relevant foreign corporation and 
                                             amounts are reported.                          Regulations section 1.163(j)-7(h)(2).
that has ECI is also subject to the section 
163(j) limitation. As foreign persons are    When a CFC group election is in effect,        The safe-harbor election is available if 
only taxed on their ECI, ATI, business       each CFC group member must file Form           a CFC group’s (or stand-alone applicable 
interest expense, business interest          8990 on a separate entity basis. A CFC         CFC’s) business interest expense is equal 
income, and floor plan financing interest    group member’s Form 8990 should report         to or less than either (A) its business 
expense are modified to limit such           the individual CFC group member’s              interest income or (B) 30 percent of the 
amounts to income which is ECI and           amounts on line 1 through line 25. A CFC       lesser of (i) its qualitative tentative taxable 
expenses properly allocable to ECI. A        group member is not required to complete       income (QTTI) or (ii) its eligible amount. A 
relevant foreign corporation means any       line 26 through line 29 and should report      CFC group is not eligible for the 
foreign corporation whose classification is  its current-year business interest expense     safe-harbor election if any CFC group 
relevant under Regulations section           deduction and disallowed business              member has a pre-group disallowed 
301.7701-3(d)(1) for a taxable year, other   interest expense (as determined under          business interest expense carryforward for 
than solely pursuant to sections 881 or      Regulations section 1.163(j)-7(c)(3)) on       the specified period. Regulations section 
882.                                         lines 30 and 31.                               1.163(j)-7(h)(2).
Before applying section 163(j), a            In addition, the specified group parent        With respect to a stand-alone 
foreign corporation that has ECI must first  of a CFC group must attach a separate          applicable CFC, QTTI means an 
determine its business interest expense      Form 8990 in order to report the combined      applicable CFC's tentative taxable income 
allocable to ECI under Regulations section   limitation of the CFC group (in addition to    for the taxable year, determined by taking 
1.882-5. Business interest expense           the Form 8990, if any, that must be filed by   into account only items properly allocable 
allocable to ECI is reported on Schedule I   the specified group parent on a separate       to a non-excepted trade or business. With 
(Form 1120-F). Disallowed business           entity basis). Line 1 through line 25 should   respect to a CFC group, QTTI means the 
interest expense carryforward, as            generally be completed by adding               sum of each CFC group member's 
determined under 163(j), that was            together the individual amounts reported       tentative taxable income for the specified 
allocable to ECI in a prior year but         by each CFC group member on a                  taxable year, determined by taking into 
deductible in the current tax year and any   separate entity basis. Line 26 through         account only items properly allocable to a 
current year ECI business interest           line 31 of Form 8990 should be completed       non-excepted trade or business. See 
expense that becomes disallowed              by reference to the total amounts reported     Regulations section 1.163(j)-7(h)(4).
business interest expense carryforward,      in line 1 through line 25. The specified       The eligible amount is the sum of the 
after applying 163(j), are also included on  group parent must also annually attach a       amounts a domestic corporation would 
Schedule I (Form 1120-F).                    statement identifying the specified period     include in gross income under sections 
                                             and the name and specified taxable year        951(a)(1)(A) and 951A(a), reduced by any 
Controlled foreign corporations              of each CFC group member. Compliance           deductions that would be allowed under 
(CFCs). Section 163(j) generally applies     with these instructions satisfies the          section 245A (by reason of section 964(e)
to determine the deductibility of an         statement requirement under Regulations        (4)) or section 250(a)(1)(B)(i), if the 
applicable CFC’s business interest           section 1.163(j)-7(e)(5)(iv) and the annual    domestic corporation had a taxable year 
expense deduction for purposes of            information reporting requirement under        ending on the last date of the taxable year 
computing its taxable income (determined     Regulations section 1.163(j)-7(e)(6).          of the stand-alone applicable CFC (or 
under Regulations section 1.952-2 or the 
rules of section 882) in the same manner     When a specified group parent files            specified period of the CFC group), it 
as it applies to determine the deductibility Form 8990 to report the combined               wholly owned the stand-alone applicable 
of a domestic C corporation’s business       limitation of the CFC group, enter             CFC throughout the CFC’s taxable year 
interest expense for purposes of             “Specified Group Parent” as the name of        (or wholly owned each CFC group 
computing its taxable income. An             the foreign entity on page 1. Enter zeros      member throughout the CFC group 
applicable CFC means a foreign               for the foreign entity’s EIN number.           member’s specified taxable year), it did 
corporation described in section 957, but    A specified group parent means a               not own any assets other than stock in the 
only if the foreign corporation has at least qualified U.S. person or an applicable         stand-alone applicable CFC (or CFC 
one U.S. shareholder that owns (within the   CFC. A qualified U.S. person means a           group members), and it had no other items 
meaning of section 958(a)) stock of the      United States person described in section      of income, gain, deduction, or loss. These 
foreign corporation.                         7701(a)(30)(A) or (C). Members of a            amounts are determined by taking into 
                                             consolidated group that file (or that are      account any elections that are made with 
CFC group election.  If a CFC group          required to file) a consolidated U.S.          respect to the applicable CFC(s), 
election has been made under                 federal income tax return are treated as a     including under Regulations section 
Regulations section 1.163(j)-7(c), the       single qualified U.S. person, and              1.954-1(d)(5) (relating to the subpart F 
election statement described in              individuals described in section 7701(a)       high-tax exception) and Regulations 
Regulations section 1.163(j)-7(e)(5)(iv)     (30)(A) whose filing status is married filing  section 1.951A-2(c)(7)(viii) (relating to the 
must be included in the year the CFC         jointly are treated as a single qualified U.S. GILTI high-tax exclusion). These amounts 
group election is made. Additionally, a      person.                                        are also determined without regard to any 
single section 163(j) limitation is computed                                                section 163(j) limitation on business 
for a specified period of a CFC group. A     Safe-harbor election. If a safe-harbor         interest expense and without regard to any 
CFC group sums each of its CFC group         election is in effect with respect to a        disallowed business interest expense 
member’s separate-company applicable         taxable year of a stand-alone applicable       carryovers. In addition, these amounts are 
amounts for a specified period. Items of a   CFC or a specified taxable year of a CFC       determined by only taking into account 
CFC group member are translated into a       group member, then, for such year, no          items of the applicable CFC(s) that are 
single currency for the CFC group and        portion of the applicable CFC's business       properly allocable to a non-excepted trade 

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or business under Regulations section or business. A specified deemed inclusion If the foreign entity is a CFC group
1.163(j)-10. See Regulations section also includes any amount included in a member or if this Form 8990 is being filed
1.163(j)-7(h)(3). domestic partnership’s gross income by the specified group parent for the CFC
The safe-harbor does not apply to under sections 951(a) or 951A(a) with group, see CFC group election, earlier, for
excess business interest expense, as respect to an applicable CFC to the extent additional requirements when making a
described in Regulations section such amounts are attributable to CFC group election. One of those
1.163(j)-6(f)(2), until the taxable year in investment income of the partnership and additional requirements is that a separate
which it is treated as paid or accrued by an are allocated to a domestic C corporation Form 8990 must be completed in order to
applicable CFC under Regulations section that is a direct (or indirect) partner and report the combined limitation of the CFC
1.163(j)-6(g)(2)(i). Excess business treated as properly allocable to a group.
interest expense is not taken into account non-excepted trade or business of the
for purposes of this election until a taxable domestic C corporation. Part I—Computation of
year in which it is treated as paid or Section 1.163(j)-7(j) of the 2020 Allowable Business
accrued by an applicable CFC under Proposed Regulations does, however,
Regulations section 1.163(j)-6(g)(2)(i). allow a U.S. shareholder to add to its Interest Expense
See Regulations section 1.163(j)-7(h) for tentative taxable income a portion of its Complete Part I to determine your
full election rules. specified deemed inclusions that are allowable business interest expense
For purposes of the safe-harbor attributable to either a stand-alone deduction.
election, all items must be determined applicable CFC or a CFC group member,
using the U.S. dollar. If BII, BIE, or any except to the extent attributable to an If you are a taxpayer that owns an
items that are taken into account in inclusion under section 78 with respect to interest in a partnership subject to the
computing QTTI are maintained in a an applicable CFC. That portion is equal section 163(j) limitation, see the
currency other than the U.S. dollar, then to the ratio of the applicable CFC’s CFC instructions to Schedule A before
those items must be translated into the excess taxable income over its ATI. completing Part I.
U.S. dollar using the average exchange Change in ATI computation. After If you are a taxpayer that is a
rate for the taxable year. 2021, ATI is computed with deductions for shareholder in an S corporation subject to
Limitation on pre-group disallowed depreciation, amortization, depletion, and the section 163(j) limitation, see the
business interest expense carryfor- any other deduction prescribed in instructions to Schedule B before
ward. The amount of the pre-group published guidance. Do not add back the completing Part I.
disallowed business interest expense deductions for depreciation, amortization, If you are a regulated investment
carryforwards that may be included in any or depletion attributable to a trade or company that paid section 163(j) interest
CFC group member’s business interest business after 2021. dividends and that has no business
expense deduction for any specified Change from being subject to section interest expense for the taxable year,
taxable year may not exceed the 163(j) to being exempt from section complete only Sections I and III.
aggregate section 163(j) limitation for all 163(j) under the small business ex-
specified periods of the CFC group, emption. A taxpayer that has disallowed Prepare the form in U.S. dollars.
determined by reference only to the CFC business interest expense from a prior
group member’s items of income, gain, year and meets the small business Section I—Business
deduction, and loss, and reduced exemption in the current year is no longer Interest Expense (Lines 1
(including below zero) by the CFC group required to limit their business interest
member’s business interest expense expense for section 163(j) purposes. Through 5)
(including disallowed business interest Line 1. Current year business interest
Similarly, a partner with excess
expense carryforwards) taken into expense. Enter the business interest
business interest expense from a
account as a deduction by the CFC group expense (not including floor plan financing
partnership is not required to limit such
member in all specified taxable years in interest expense or disallowed business
excess business interest expense under
which the CFC group member has interest expense carryforwards from prior
section 163(j) if the partnership meets the
continuously been a CFC group member years) that would have been deductible in
small business exemption in the current
of the CFC group (cumulative section the current year without the application of
year and the partner also meets the small
163(j) pre-group carryforward limitation). section 163(j).
business exemption in the current year.
See Regulations section 1.163(j)-7(c)(3)
(iv). Change from non-excepted trade or Interest expense from an excepted
business to excepted trade or busi- trade or business should not be included.
U.S. shareholder of an applicable CFC. See Ownership of pass-through entities
ness. If a taxpayer has disallowed
A U.S. shareholder of an applicable CFC not subject to the section 163(j) limitation,
business interest expense from a prior
must reduce its ATI by an amount equal to earlier.
year, or excess business interest expense
the sum of any specified deemed
from a partnership, for which an election to
inclusions that were included in the Do not include interest expense
be an excepted trade or business is made
computation of the taxpayer’s tentative allocated by a trading partnership to a
in the current year, then the disallowed
taxable income, reduced by the portion of partner that does not materially
business interest expense carried forward,
the deduction allowed under section participate. See Trading partnerships,
or excess business interest expense, is
250(a) by reason of the specified deemed earlier.
still subject to the section 163(j) limitation.
inclusions. Regulations section For C corporations with an interest in a
1.163(j)-1(b)(1)(ii)(G). A specified deemed partnership, any investment interest
inclusion means the inclusion of an Specific Instructions expense allocated to the C corporation is
amount by a U.S. shareholder (as defined treated as business interest expense of
in section 951(b)) in gross income under If Form 8990 relates to an information
the C corporation from a non-excepted
sections 78, 951(a), or 951A(a) with return for a foreign entity (for example,
trade or business.
respect to an applicable CFC that is Form 5471), provide the foreign entity
properly allocable to a non-excepted trade name and appropriate identification Line 2. Disallowed business interest
number. expense carryovers from prior years.

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Enter the prior year disallowed business from the section 743(b) basis adjustments. is determined without regard to section
interest expense carryover. See Form For an S corporation, this will generally be 163(j). See Regulations section
8990, line 31 for prior year amount. the amount on Form 1120-S, Schedule K, 1.163(j)-1(b)(43).
For consolidated groups with members line 18, Income/loss reconciliation.
Line 11. Deduction allowable for de-
joining or leaving the group, see To compute a partnership's and preciation, amortization, or depletion
Regulations section 1.163(j)-5 as partner's ATI, the partnership (not the attributable to a trade or business.
limitations may apply. partner) takes into account items resulting Enter the amounts allowable for
from adjustments to property under
Line 2 does not apply to depreciation, amortization, or depletion
section 734(b). See Regulations section attributable to a trade or business.
! partnerships. 1.163(j)-6(d)(2). However, to compute ATI
CAUTION The amount of any depreciation,
or items resulting from adjustments to
amortization, or depletion that is
Line 4. Floor plan financing interest property under section 743(b), the partner
capitalized into inventory under section
expense. Enter the current year floor plan (not the partnership) takes into account
263A during taxable years beginning
financing interest expense. such items.
before January 1, 2022, is added back to
These adjustments are entered on tentative taxable income as a deduction
Section II—Adjusted line 13 (or line 20) of Form 8990. for depreciation, amortization, or depletion
Taxable Income (Lines 6 Additions (Lines 7 Through 16) when calculating ATI for that taxable year,
regardless of the period in which the
Through 22) Add back to tentative taxable income capitalized amount is recovered through
Enter all numbers as positive amounts certain adjustments to arrive at ATI. Do cost of goods sold.
unless otherwise indicated. not include amounts that were not taken
into account in tentative taxable income on Do not include amounts from
Under the CARES Act, taxpayers may line 6. See Adjusted taxable income (ATI) pass-through entities, which are entered
elect to use the ATI for the last year defined earlier. on line 12.
beginning in 2019 to calculate their
limitation for any taxable year beginning in Line 7. Any item of loss or deduction For tax years beginning after
2020. See Revenue Procedure 2020-22, which is not properly allocable to a ! 2021, do not add back the
2020-18 I.R.B. 745, available at trade or business of the taxpayer. CAUTION deductions for depreciation,
www.irs.gov/irb/2020-18_IRB#REV- Enter any item of loss or deduction that is amortization, or depletion attributable to a
PROC-2020-22, for the time and manner not properly allocable to a trade or trade or business.
of making the election. business of the taxpayer, including the
Line 12. Amount of any loss or deduc-
taxpayer’s loss or deduction from any
tion items from a pass-through entity.
Tentative Taxable Income excepted trades or businesses. The
Enter any amount of loss or deduction
Form 8990 has not been updated amount of the addition is limited to the
items from pass-through entities
amount the additional item affected
(regardless of whether the entity is subject
! for 2021. As a result, Form 8990 tentative taxable income.
CAUTION uses the term “taxable income” to
to the section 163(j) limitation).
refer to amounts described in these For example, a personal casualty loss
instructions as “tentative taxable income.” is not allocable to a trade or business of a Line 13. Other additions. Enter the
Please refer to these instructions for taxpayer, which would be entered on amount of any capital loss carryback or
updated terms. line 7 as a positive amount to the extent carryover.
the casualty loss offset tentative taxable A taxpayer subject to the section 163(j)
Line 6. Tentative taxable income. Enter income. limitation who has an interest in a
tentative taxable income computed as Do not include amounts from pass-through entity not subject to the
though all of the business interest pass-through entities, which are entered section 163(j) limitation should include
expense is otherwise allowable business on line 12. their share of the entity’s ATI in other
interest expense. In figuring tentative additions. See Ownership of pass-through
taxable income, consider all other Line 8. Any business interest expense entities not subject to the section 163(j)
applicable limitations such as sections not from a pass-through entity. Add to limitation, earlier.
163(f), 267, basis (sections 704 and tentative taxable income all business
A C corporation should include
1366), at-risk (section 465) and passive interest expense, to the extent included in
investment income from a pass-through
activity loss (section 469), and excess tentative taxable income, that is not from a
entity as other additions. See C
business loss (section 461(l)) limitations pass-through entity. For section 163(j),
corporation business interest expense and
prior to inputting the tentative taxable interest expense does not include interest
income, earlier.
income amount. from an excepted trade or business.
For trusts and estates subject to
The tentative taxable income of a section 163(j), add back the amount of any
Note. Interest expense that is allocable to
partnership or S corporation shall include income distribution deduction under
an excepted trade or business is not
both separately and non-separately stated sections 651 and 661, and the deduction
treated as business interest expense.
items. For a partnership, this will generally under section 642(c).
be the amount on Form 1065, Analysis of Line 9. Amount of any net operating
Net Income (Loss), line 1, Net income loss deduction under section 172. The ATI of a beneficiary (including a
(loss), less guaranteed payments, Enter the amount of any net operating loss tax-exempt beneficiary) of a trust or a
Schedule K, line 4c. If adjustments to a deduction carried forward or carried back decedent's estate is increased by any
partnership's income or deductions to the current tax year under section 172. income (including any distributable net
income) received from the trust or estate
resulting from section 743(b) basis Line 10. Amount of any qualified busi- by the beneficiary to the extent such
adjustments are taken into account in ness income deduction allowed under income was not necessary to permit a
calculating a partnership's net income section 199A. Enter the amount of any deduction under section 163(j)(1)(B) and
(loss), remove the effects of those qualified business income deduction Regulations section 1.163(j)-2(b) for any
adjustments by adding or subtracting the allowed under section 199A. To determine business interest expense of the trust or
income, gain, loss, or deduction resulting ATI, the section 199A deduction in line 10

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estate that was in excess of any business Line 20. Other reductions. Include floor Section IV—163(j)
interest income of the trust or estate. plan financing interest expense. Limitation Calculations
A U.S. shareholder of an applicable If you are filing Form 8990 for an
CFC should include the amount added to applicable CFC, include the amount of any (Lines 26 Through 31)
the U.S. shareholder's tentative taxable related party dividend income. See Limitation on Business Interest
income under 2020 Proposed Regulations Regulations section 1.163(j)-7(g)(2). Expense
section 1.163(j)-7(j). Separately list each
inclusion by stand-alone applicable CFC If property is sold or otherwise
or CFC group member. disposed of, subtract from tentative Line 26. Applicable percentage of ATI
taxable income the greater of the allowed limitation. Multiply the ATI from line 22
An applicable CFC should include the or allowable depreciation, amortization, or by the applicable percentage. The
amount of any deduction for foreign depletion of the property, as provided applicable percentage is 30% (30% ATI
income tax (as defined in Regulations under section 1016(a)(2), for the taxpayer limitation). However, under the CARES
section 1.960-1(b)) that was included in (or, if the taxpayer is a member of a Act, the applicable percentage for tax
computing tentative taxable income on consolidated group, the consolidated years beginning in 2019 and 2020 is 50%,
line 6 since foreign income taxes should group) for the taxable years beginning instead of 30%, of your ATI (50% ATI
not reduce ATI. See Regulations section after December 31, 2017, and before limitation). The 50% ATI limitation does
1.163(j)-7(g)(3). A CFC that is applying January 1, 2022. not apply to partnerships for tax years
2020 Proposed Regulations section beginning in 2019. See section 163(j)(10)
1.163(j)-7(g)(3) should generally not A U.S. shareholder of an applicable (A)(i).
report foreign income taxes on line 13. CFC should include an amount equal to
the sum of any specified deemed You may elect not to apply the 50% ATI
Also include any other additions inclusions that were included in the limitation to any tax year beginning in 2019
described in published guidance. If none, computation of the taxpayer's tentative or 2020, and instead apply the 30% ATI
leave blank. taxable income, reduced by the portion of limitation. In the case of a partnership, the
Line 15. Total current year S corpora- the deduction allowed under section election must be made by the partnership
tion shareholder’s excess taxable in- 250(a) by reason of the specified deemed and may be made only for tax years
come. Enter the amount of any S inclusions. Regulations section beginning in 2020. You may elect to use
corporation excess taxable income 1.163(j)-1(b)(1)(ii)(G). Separately list each the ATI for the last year beginning in 2019
reported on Schedule B, line 46, column reduction by stand-alone applicable CFC to calculate the limitation for any tax year
(c). or CFC group member. beginning in 2020. See Revenue
Procedure 2020-22, 2020-18 I.R.B. 745,
Also include any other reductions available at www.irs.gov/irb/
Reductions (Lines 17 Through described in published guidance. If none, 2020-18_IRB#REV-PROC-2020-22, for
21) leave blank. the time and manner of making the
Subtract from tentative taxable income A C corporation should include elections described above under the
certain adjustments to arrive at ATI. Do investment interest expenses from a CARES Act.
not include amounts that were not taken pass-through entity as other reduction. For a partnership or S corporation, if
into account in tentative taxable income on See C corporation business interest line 26 is zero, enter -0- on lines 35 and
line 6. See ATI, defined earlier. expense and income, earlier. 40.
Line 17. Any item of income or gain Line 22. Adjusted taxable income
which is not properly allocable to a (ATI). If line 22 is zero or less, enter zero. Allowable Interest Expense
trade or business of the taxpayer. Line 30. Total current year business
Enter any item of income or gain, which is Section III—Business interest expense deduction. A taxpayer
not properly allocable to a trade or subject to the section 163(j) limitation will
business of the taxpayer, including the Interest Income (Lines 23
enter on line 30 the smaller of line 29 or
taxpayer’s income or gain from any Through 25) line 5. Line 30 is the amount of current
excepted trade(s) or business(es). year business interest expense deduction
Line 23. Current year business interest
For example, gain from the sale of a income. Enter the amount of business allowed after considering the section
taxpayer's personal residence would be interest income directly paid to or accrued 163(j) limitation.
entered on line 17 because it is not gain by the taxpayer. This does not include If a partner is not subject to the section
that is allocable to a trade or business of interest income from excepted trades or 163(j) limitation and has partnership
the taxpayer. businesses. excess business interest expense treated
Do not include amounts from For C corporations with an interest in a as paid or accrued in the current year,
pass-through entities, which will be partnership, any investment interest enter the amount from Schedule A,
entered on line 19. income allocated to the C corporation is line 44, column (h). The amount will not be
Line 18. Any business interest income treated as business interest income of the subject to further limitation under section
not from a pass-through entity. Enter C corporation from a non-excepted trade 163(j).
all business interest income, to the extent or business. If the amount on line 29 is less than the
included in tentative taxable income on See Ownership of pass-through entities amount on line 5 and business interest
line 6, that is not from a pass-through not subject to the section 163(j) limitation, expense is reported on more than one
entity (regardless of whether the entity is earlier. location on the return (such as ordinary
subject to the section 163(j) limitation). business interest expense and farming
interest expense), then the disallowed
Line 19. Amount of any income or gain business interest expense must be
items from a pass-through entity. allocated to each source in proportion to
Enter amount of any income or gain items the total amount of business interest
from pass-through entities. expense from each source. Attach a
schedule to Form 8990 that indicates the
amount and line item on the tax return

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where the business interest expense is        with an interest in a partnership engaged     section 163(j)(10)(A)(ii)(II) and Revenue 
being deducted.                               in a U.S. trade or business, the amount of    Procedure 2020-22.
                                              excess items is limited to ECI. For such        If you elect out of deducting 50% of 
Note. For the first tax year beginning in     foreign partners, report on Schedule A        2019 excess business interest expense on 
2020, increase line 30 by 50% of 2019         only the ECI portion of the excess section    your tax return for the first taxable year 
Form 8990, Schedule A, line 43, column        163(j) amounts and attach a statement         beginning in 2020, enter the amount from 
(c), unless you elect not to apply this       showing how the ECI portion of the excess     line 43, column (i) of the 2019 Form 8990.
special rule relating to 2019 excess          section 163(j) amounts were determined. 
business interest expense. See section        See 2020 Proposed Regulations section         Line 43, column (h). Excess business 
163(j)(10)(A)(ii)(II) and Revenue             1.163(j)-8(c) for additional information.     interest expense treated as paid or ac-
Procedure 2020-22.                                                                          crued.  Enter the lesser of:
                                              On line 43, enter the amount of current       • The total excess business interest 
Carryforward                                  year excess business interest expense in      expense amount in column (e), or
Line 31. Disallowed business interest         column (c), current year excess taxable       • The current year excess taxable 
expense. Subtract line 29 from line 5. If     income in column (f), and the current year    income in column (f) plus the current year 
zero or less, enter -0-.                      excess business interest income in            excess business interest income in 
                                              column (g), reported to the partner on        column (g) from the same partnership.
Note. The amount on line 31 is used on        Schedule K-1 for each partnership.              In addition, add any of the applicable 
the taxpayer’s next year’s Form 8990,                                                       amounts listed below, and attach a 
line 2 (except for partnerships). If the      Do not include excess business 
taxpayer completing this form is a            interest expense that is suspended under      statement to the Form 8990 identifying the 
partnership, carry the amount on line 31 to   the basis limitation rules of section 704(d). partnership name, amount, and 
Part II, line 32, of the current year Form    See Regulations section 1.163(j)-6(h) for     description of addition.
8990.                                         basis adjustment calculations and             • The amount of excess business interest 
                                              ordering rules for losses under section       expense carryover in line 43(d) if the 
                                              704(d).                                       partnership became an exempt entity 
Part II—Partnership                                                                         during the tax year. See Regulations 
                                              Line 43, column (c). Current year.            section 1.163(j)-6(m)(3).
Pass-Through Items                            Reduce the current year excess business       • Any business interest expense that is 
Part II is completed by a partnership that is interest expense by the amount of             treated in the current tax year, as paid or 
subject to section 163(j) and is required to  negative section 163(j) expense that          accrued under the transition rule of 
file Form 8990. The partnership items are     relates to the current year excess            regulation for trading partnerships. See 
allocated to the partners and are not         business interest expense, and attach a       Regulations section 1.163(j)-6(c)(3).
carried forward by the partnership.           statement to the Form 8990 identifying the 
See the Instructions for Form 1065 for        partnership name and amount of negative       Line 43, column (i). Current year ex-
how the partnership reports the excess        163(j) expense. See Regulations section       cess business interest expense carry-
business interest expense, excess taxable     163(j)-6(h).                                  forward. Columns 43(e) minus (h), less 
                                                                                            any excess business interest expense that 
income, and excess business interest          For the first tax year beginning in 2020,     previously reduced basis that you are 
income to the partners.                       column (d) may not equal column (i) of the    required to make a basis adjustment upon 
See Ownership of pass-through entities        2019 Form 8990. See instructions for          disposition of partnership interest. See 
not subject to the section 163(j) limitation, line 43, column (d). To the extent column     Regulations section 1.163(j)-6(h)(3).
earlier.                                      (i) of the 2019 Form 8990 exceeds column 
                                              (d) of the 2020 Form 8990, include such       Line 44, column (f). Total current year 
                                              excess in Part I, line 30 in 2020. You may    excess taxable income.   If the partner is 
Part III—S Corporation                        elect not to apply this special rule relating subject to the section 163(j) limitation, add 
Pass-Through Items                            to 2019 excess business interest expense.     the amounts entered on line 43, column 
Part III is completed by an S corporation     See section 163(j)(10)(A)(ii)(II) and         (f), for all partnerships listed. Enter this 
that is subject to the section 163(j)         Revenue Procedure 2020-22.                    total amount on Part I, line 14.
limitation. The S corporation’s excess        Line 43, column (d). Prior year carry-        Line 44, column (g). Total current year 
taxable income and excess business            over. From the prior year’s Form 8990,        excess business interest income.       For 
interest income are allocated to the          enter the amount from line 43, column (i).    the partners subject to the section 163(j) 
shareholders pro rata after the S             Increase the prior year carryover by the      limitation, add the amounts entered on 
corporation’s section 163(j) limitation is    amount of negative section 163(j) expense     line 43, column (g), for all partnerships 
determined and are not carried forward by     that is no longer suspended, or if            listed. Enter this total amount on Part I, 
the S corporation.                            applicable, reduce the prior year excess      line 24.
See the Instructions for Form 1120-S          business interest expense by the amount       Line 44, column (h). Total excess busi-
for how to report the excess taxable          of negative section 163(j) expense that       ness interest expense treated as paid 
income and the excess business interest       relates to the prior year excess business     or accrued. For the partners subject to 
income to the shareholders.                   interest expense. Attach a statement to       the section 163(j) limitation, add the 
                                              the Form 8990 identifying the partnership     amounts entered on line 43, column (h), 
Schedule A—Summary of                         name and a description of the adjustments     for all partnerships listed. Enter this total 
                                              and the amounts. See Regulations section      amount on Part I, line 3. For partners not 
Partner’s Section 163(j)                      1.163(j)-6(h).                                subject to the section 163(j) limitation, 
Excess Items                                  For the first tax year beginning in 2020,     include this amount on Part I, line 30.
Any taxpayer that is required to complete     enter the amount from line 43, column (i) 
Part I and is a partner in a partnership that of the 2019 Form 8990, less 50% of the 
is subject to the section 163(j) limitation   amount from line 43, column (c) of the 
must complete Schedule A before               2019 Form 8990. You may elect not to 
completing Part I. For a foreign person       apply this special rule relating to 2019 
that is not a relevant foreign corporation    excess business interest expense. See 

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Schedule B—Summary of section 163(j) limitation must allocate its The calculation in Regulations sections
deductible business interest expense and 1.163(j)-6(f)(2)(i) through (xi) is solely for
S Corporation section 163(j) excess items, if any, among determining each partner’s allocable share
Shareholder’s Excess its partners. The Regulations provide that of deductible business interest expense,
deductible business interest expense and excess business interest expense, excess
Taxable Income and
section 163(j) excess items must be taxable income, and excess business
Excess Business Interest allocated in accordance with the 11-step interest income. Accordingly, no rule set
Income computation shown in Worksheets A and forth in Regulations section 1.163(j)-6(f)(2)
Any taxpayer that is required to complete B. See Regulations section 1.163(j)-6(f). prohibits a partnership from making an
Part I and is a shareholder in an S The partnership should use Worksheets A allocation to a partner that is otherwise
corporation that is subject to the section and B in these instructions and is permitted under section 704 and the
163(j) limitation must complete responsible for keeping records that regulations thereunder.
Schedule B before completing Part I. compute the allocation. Partnerships that
allocate all section 163(j) items in step 2
On line 45, enter the amount of current proportionately do not need to use
year excess taxable income in column (c) Worksheets A and B.
and current year excess business interest
income in column (d), reported to the Lines 1 through 7 of Worksheet A are
shareholder on Schedule K-1 for each S taken from the partnership’s Form 8990,
corporation. which it must complete first. Lines 8
through 10 reflect the manner in which the
Line 46, column (c). Total current year partnership allocated its ATI, business
excess taxable income. Add the interest income, and business interest
amounts entered on line 45, column (c), expense to its partners. Only items that
for all S corporations listed. Enter this total were taken into account in lines 1 through
amount on Part I, line 15. 3 are taken into account in lines 8 through
Line 46, column (d). Total current year 10. As a result, section 743(b)
excess business interest income. Add adjustments, section 704(c) remedial
the amounts entered on line 45, column allocations, allocations of investment
(d), for all S corporations listed. Enter this income and expense, and amounts
total amount on Part I, line 24. determined for the partner under
Regulations section 1.882-5 are not taken
Worksheet into account in lines 8 through 10. See
Regulations section 1.163(j)-6(f)(2)(ii) for
A—Determination of Each the definitions of “allocable ATI” (line 8),
Partner's Deductible “allocable business interest income”
Business Interest Expense (line 9), and “allocable business interest
expense” (line 10). All of the information
and Section 163(j) Excess necessary to complete the rest of
Items and Worksheet Worksheets A and B is contained in lines
1 through 10. See the Instructions for
B—Determination of Each Form 1065 for how the partnership reports
Partner's Relevant Section the excess business interest expense,
163(j) Items excess taxable income, and excess
The Regulations provide guidance business interest income to the partners.
regarding how a partnership subject to the

Average Annual Gross Receipts Worksheet Per Section 448(c)
Column A Column B Column C
1st preceding tax year 2nd preceding tax year 3rd preceding tax year
1. Annual gross receipts $ $ $
2. Plus annual gross receipts of related entities per aggregate rules $ $ $
3. Total annual gross receipts $ $ $
4. Average annual gross receipts (line 3 columns A + B + C divided by
3) $

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Determination of Each Partner’s Deductible Business Interest Expense 
and Section 163(j) Excess Items—Worksheet A                                                             Keep for Your Records
Before you begin:               Complete Form 8990 before beginning this worksheet. 
                                This worksheet provides space for up to three partners. If there are more than three partners, use more than 
                                 one worksheet. The total column should reconcile to amounts for all partners.
                                                                                Partner 1   Partner 2         Partner 3   Total
Step 1: Partnershiplevel calculation required by section 163(j)(4)(A).
1.  Partnership’s Adjusted Taxable Income (ATI) (Form 8990, line 22)  
2.  Partnership’s business interest income (Form 8990, line 25)  .
3.  Partnership’s business interest expense (Form 8990, subtract 
    line 4 from line 5)      . .     . . .  .  .    . .    .        . . .
4.  Partnership’s deductible business interest expense (Form 8990, 
    subtract line 4 from line 30) .    . .  .  .    . .    .        . . .
5.  Partnership’s excess business interest expense (Form 8990, line 32)  
6.  Partnership’s excess taxable income (Form 8990, line 36)            .
7.  Partnership’s excess business interest income (Form 8990, line 37)  
Step 2: Determine each partner’s section 163(j) items.
8.  Partner’s allocable ATI. See instructions  .    . .    .        . . .
9.  Partner’s allocable business interest income. See instructions  
10. Partner’s allocable business interest expense. See instructions  
Step 3: Partnerlevel comparison of business interest income and business interest expense.
11. Subtract line 10 from line 9. (If zero or less, enter   0 .)  . . .
12. Subtract line 9 from line 10. (If zero or less, enter   0 .)  . . .
Step 4: Matching partnership and aggregate partner excess business interest income.
13. Divide line 11 by the line 11 total column amount. (If the total 
    column equals zero, enter   0 .)   .  .  .    . .    .        . . .                 %           %                 %                     %
14. Multiply line 13 by the line 12 total column amount .           . . .
15. Subtract line 14 from line 11. (If zero or less, enter   0 .)   . .
Step 5: Remaining business interest expense determination.
16. Divide line 12 by the line 12 total column amount. (If the total 
    column equals zero, enter   0 .)   .  .  .    . .    .        . . .                 %           %                 %                     %
17. Multiply line 16 by the line 11 total column amount .           . . .
18. Subtract line 17 from line 12. (If zero or less, enter   0 .)   . .
Step 6: Determination of ﬁnal allocable ATI.
19. If line 8 is greater than or equal to $0, enter the amount from 
    line 8. Otherwise, enter   0   . . .  .  .    . .    .        . . .
20. If  line  8  is  less  than  $0,  enter  the  absolute  value  of  line  8. 
    Otherwise, enter   0   . .     . . .  .  .    . .    .        . . .
21. Divide line 19 by the line 19 total column amount. (If the total 
    column equals zero, enter   0 .)   .  .  .    . .    .        . . .                 %           %                 %                     %
22. Multiply line 21 by the line 20 total column amount .           . . .
23. Subtract line 22 from line 19. (If zero or less, enter   0 .)   . .
Step 7: Partnerlevel comparison of the applicable percentage of ATI and remaining business interest expense.
24. Multiply line 23 by the applicable percentage (dened earlier)  
25. Subtract line 18 from line 24. (If zero or less, enter   0 .)   . .
26. Subtract line 24 from line 18. (If zero or less, enter   0 .)   . .

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Determination of Each Partner’s Deductible Business Interest Expense
and Section 163(j) Excess Items—Worksheet A—Continued Keep for Your Records
Partner 1 Partner 2 Partner 3 Total
Step 8: Partner priority right to ATI capacity excess determination.
27a. Is the line 5 total column amount greater than zero? Yes No
27b. Is the line 20 total column amount greater than zero? Yes No
27c. Is the line 26 total column amount greater than zero? Yes No
27d. Are lines 27(a), 27(b), and 27(c) all “Yes”? . Yes No
28. If line 27d is “No,” enter the amount from line 25. Otherwise,
complete Worksheet B . . . . . . . . . . . .
29. If line 27d is “No,” enter the amount from line 26. Otherwise,
complete Worksheet B . . . . . . . . . . . .
30. If line 27d is “No,” enter -0-. Otherwise, complete Worksheet B
Step 9: Matching partnership and aggregate partner excess taxable income.
31. Divide line 28 by the line 28 total column amount. (If the total
column equals zero, enter -0-.) . . . . . . . . . % % % %
32. Multiply line 31 by the line 29 total column amount . . . .
33. Subtract line 32 from line 28. (If zero or less, enter -0-.) . .
Step 10: Match partnership and aggregate partner excess business interest expense.
34. Divide line 29 by the line 29 total column amount. (If the total
column equals zero, enter -0-.) . . . . . . . . . % % % %
35. Multiply line 34 by the line 28 total column amount . . . .
36. If line 30 is greater than zero, enter the amount from line 30.
Otherwise, subtract line 35 from line 29. (If zero or less, enter -0-.)
Step 11: Final section 163(j) excess item and deductible business interest expense allocation.
37. Partner’s deductible business interest expense. Subtract line
36 from line 10 . . . . . . . . . . . . . .
38. Partner’s excess business interest expense. Enter the amount
from line 36 . . . . . . . . . . . . . . .
39. Partner’s excess taxable income. Multiply line 33 by (10/3) .
40. Partner’s excess business interest income. Enter the amount
from line 15 . . . . . . . . . . . . . . .
Note.
• Line 3: Equals the partnership’s business interest expense, not taking into account oor plan nancing interest expense. From Form 8990,
subtract line 4 from line 5.
• Line 4: Equals the partnership’s deductible business interest expense, not taking into account oor plan nancing interest expense. From
Form 8990, subtract line 4 from line 30.
• Line 8: Equals “allocable ATI” as dened in Proposed Regulations section 1.163(j) 6(f)(2)(ii).
• Line 9: Equals “allocable business interest income” as dened in Proposed Regulations section 1.163(j) 6(f)(2)(ii).The line 9 total column
amount must equal the line 2 total column amount.
• Line 10: Equals “allocable interest expense” as dened in Proposed Regulations section 1.163(j) 6(f)(2)(ii).The line 10 total column amount
must equal the line 3 total column amount.
• Line 23: The line 23 total column amount must equal the line 1 total column amount.
• Line 27d: If line 27d is “Yes,” the partnership must complete Worksheet B (in order to get the correct values for lines 28–30) before proceeding
to line 31 of Worksheet A.
• Line 37: The line 37 total column amount must equal the line 4 total column amount.
• Line 38: The line 38 total column amount must equal the line 5 total column amount.
• Line 39: The line 39 total column amount must equal the line 6 total column amount.
• Line 40: The line 40 total column amount must equal the line 7 total column amount.
• The lines 13, 16, 21, 31, and 34 total column amount must equal 100% or zero.

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Determination of Each Partner’s Relevant 
Section 163(j) Items—Worksheet B                                                                        Keep for Your Records

Before you begin:              Complete “Determination of Each Partner’s Deductible Business Interest Expense and Section 163(j) 
                                Excess Items—Worksheet   A” before beginning this worksheet.
                               This worksheet provides space for up to three partners. If there are more than three partners, use more than 
                                one worksheet. The total column should reconcile to amounts for all partners.
Step 8A: Who must complete this worksheet.
1.  If the answer to line 27(d) of Worksheet A is “Yes,” complete 
    this worksheet.
                                                                                Partner 1   Partner 2        Partner 3   Total
Step 8B: Determine whether to perform Step 8C or Step 8D.
2.  Subtract line 23 of Worksheet A from line 19 of Worksheet A .
3.  Multiply line 2 of Worksheet B by the applicable percentage  .
4.  If line 26 of Worksheet A is greater than zero, enter the amount 
    from line 3 of Worksheet B. Otherwise, enter -0- .   . . .
5.  Enter  the  smaller  of  line  4  of  Worksheet  B  or  line  26  of 
    Worksheet A  .      .  .  . . .     .  . . . .   .   . . .
6.  If the line 25 total column amount of Worksheet A is greater 
    than or equal to the line 5 total column amount of Worksheet 
    B, complete Step 8C of Worksheet B. If the line 5 total column 
    amount of Worksheet B is greater than the line 25 total column 
    amount of Worksheet A, complete Step 8D of Worksheet B.
Step 8C: Calculate lines 28, 29, and 30 of Worksheet A. Return to and complete Worksheet A after Step 8C.
7.  Divide  line  25  of  Worksheet  A  by  the  line  25  total  column 
    amount of Worksheet A. (If the line 25 total column amount of 
    Worksheet A equals zero, enter -0-.)  .  . . .   .   . . .                            %           %                %                     %
8.  Multiply  line  7  of  Worksheet  B  by  the  line  5  total  column 
    amount of Worksheet B       . .     .  . . . .   .   . . .
9.  Subtract line 8 of Worksheet B from line 25 of Worksheet A. 
    Enter the amount(s) on line 28 of Worksheet A  . .   . . .
10. Subtract line 5 of Worksheet B from line 26 of Worksheet A. 
    Enter the amount(s) on line 29 of Worksheet A  . .   . . .
11. Enter  0  on line 30 of Worksheet A. 
Step 8D: Calculate lines 28, 29, and 30 of Worksheet A. Return to and complete Worksheet A after Step 8D.
12. Divide line 4 of Worksheet B by the line 4 total column amount 
    of  Worksheet  B.  (If  the  line  4  total  column  amount  of 
    Worksheet B equals zero, enter -0-.)  .  . . .   .   . . .
13. Multiply  line  12  of  Worksheet  B  by  the  line  25  total  column 
    amount of Worksheet A       . .     .  . . . .   .   . . .
14. If line 4 of Worksheet B is greater than zero, enter the amount 
    from line 26 of Worksheet A. Otherwise, enter -0-  . . . .
15. Subtract line 14 of Worksheet B from line 13 of Worksheet B. 
    (If  zero  or  less,  enter  -0-.)  Enter  the  amount(s)  on  line  28  of 
    Worksheet A  .      .  .  . . .     .  . . . .   .   . . .
16. Subtract line 13 of Worksheet B from line 14 of Worksheet B. 
    (If  zero  or  less,  enter  -0-.)  Enter  the  amount(s)  on  line  29  of 
    Worksheet A  .      .  .  . . .     .  . . . .   .   . . .
17. If  line  4  of  Worksheet  B  equals  zero,  enter  the  amount  from 
    line  26  of  Worksheet  A.  Otherwise,  enter  -0-.  Enter  the 
    amount(s) on line 30 of Worksheet A  .   . . .   .   . . .

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                                              unless the form displays a valid OMB        approved under OMB control number 
Paperwork Reduction Act Notice.      We       control number. Books or records relating   1545-0123 and is included in the 
ask for the information on this form to carry to a form or its instructions must be       estimates shown in the instructions for 
out the Internal Revenue laws of the          retained as long as their contents may      their business income tax return.
United States. You are required to give us    become material in the administration of 
the information. We need it to ensure that    any Internal Revenue law. Generally, tax    If you have comments concerning the 
you are complying with these laws and to      returns and return information are          accuracy of these time estimates or 
allow us to figure and collect the right      confidential, as required by section 6103.  suggestions for making this form simpler, 
amount of tax.                                                                            we would be happy to hear from you. See 
You are not required to provide the           The time needed to complete and file        the instructions for the tax return with 
information requested on a form that is       this form will vary depending on individual which this form is filed.
subject to the Paperwork Reduction Act        circumstances. The estimated burden for 
                                              business taxpayers filing this form is 

                                              -15-

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