The IRS published updated Frequently Asked Questions (FAQs) on August 19, 2026 (IR-2026-94) addressing the limitation on the deduction for business interest expense under IRC Section 163(j), as amended by the Tax Cuts and Jobs Act (TCJA) and further modified by the CARES Act and Inflation Reduction Act. The FAQs clarify computational mechanics for the Section 163(j) limitation—generally capping net business interest expense at 30% of adjusted taxable income (ATI)—including the treatment of excess business interest expense (EBIE) carryforwards, the small business exemption threshold ($30 million average annual gross receipts test for 2026), and the interaction with Section 163(j) elections for real property trades or businesses and farming businesses under Section 163(j)(7).
Key Takeaways
- Clarified ATI Computation for 2026: The FAQs provide explicit guidance on calculating Adjusted Taxable Income for the 30% limitation, including add-backs for non-business income, NOL deductions, and the Section 199A deduction, reducing computational disputes.
- EBIE Carryforward Mechanics: Detailed examples illustrate the indefinite carryforward of disallowed interest, the ordering rules for current year vs. carryforward utilization, and the partnership-level tracking requirements under Section 163(j)(4)(B).
- Small Business Exemption Threshold Update: The $30 million gross receipts test for 2026 (rev. proc. 2025-XX) exempts qualifying taxpayers entirely from Section 163(j), a critical planning threshold for mid-market companies near the boundary.
Disclaimer: This article is compiled and summarized by the AI based on publicly available information and is for general information purposes only. It does not constitute any form of formal tax advice, legal opinion, or basis for performance. Please consult a qualified professional tax advisor or legal counsel for tax advice.
Source: Read Official Announcement