{ "media_type": "text", "post_content": "Hi all, question about 163j. So we elect 163j to get rid of the interest limitation. I dont see the difference between deducting interest at partnership level vs partner level. Any thoughts?", "post_id": "6101bc7aea77320024d74206", "reply_count": 21, "vote_count": 2, "bowl_id": "599555b669a73a0010aab3ac", "bowl_name": "Tax Bowl" }

Hi all, question about 163j. So we elect 163j to get rid of the interest limitation. I dont see the difference between deducting interest at partnership level vs partner level. Any thoughts?

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163(j) isn’t an election, it is a code section that applies to all taxpayers. The limitation does not apply to small business taxpayers or those eligible taxpayers that make the election under 163(j)(7) to elect out of 163(j). If you make the 163(j)(7) election for real property trades or businesses or farming businesses that are allowed to make the election, it exempts the partnership from the code section entirely. However, if you make this election, which is irrevocable, you’re required to use ADS and cannot utilize bonus depreciation for depreciable property. The partners who get a K-1 from an electing partnership do not need to take interest expense from that partnership into account on their personal return for 163(j) purposes. If 163j applies to a partnership, and you have non deductible interest expense under 163(j), which is called excess business interest expense (EBIE), then that passes to the partners and is a suspended deduction. The partners cannot deduct that EBIE until the same partnership distributes excess taxable income to the partners. 163(j) is a giant cluster fuck.

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This is the correct answer. Especially the last sentence. Will be interesting to see if they repeal it when corporate tax rate is increased since 163(j) was a “pay for” provision for the 21% rate. I’m thinking no since the tax gods seem not to get rid of government favorable provisions once they’re in place.

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If you do not elect and it is disallowed, it goes on 13k, which is suspended at the next partnership. If you elect, it is “good” interest expense

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Yes, but it still counts as a deduction to the partnership. But then it goes on the upper tier’s form 8990, schedule A and is suspended until at least the next year, and is freed up if they same investment had excess taxable income

Can we get more convos like this? Director 1 thanks for the clarification. Have been working with 163(j) since I started in public accounting (2.5 years) & this finally helped put some clarification on it.

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I only work on C Corps but I don’t think it’s an election unless it is for partnerships

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Yes for a partnership

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Nice write up director 1. I have read more than the average person on e topic and it’s still very difficult and needs researched each time

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Well done Director 1 - very concise explanation that makes sense. BDO 1 - what are you smoking and will you share?

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