IRS provides guidance on business interest limitation elections

The IRS provided guidance in Rev. Proc. 2026-17 on the withdrawal of elections to be excepted trades or businesses under Sec. 163(j)(7) for purposes of the business interest limitation and to make a late election under Sec. 168(k)(7) to be exempt from bonus depreciation.

The guidance is in response to changes made by H.R. 1, P.L. 119-21, commonly known as the One Big Beautiful Bill Act, to again allow taxpayers to deduct depreciation and amortization in calculating the Sec. 163(j) business interest limitation and making 100% bonus depreciation permanent.

The revenue procedure covers the withdrawal of the elections under Sec. 163(j)(7)(B) and Regs. Sec. 1.163(j)-9 to be an electing real property trade or business, under Sec. 163(j)(7)(C) and Regs. Sec. 1.163(j)-9 to be an electing farming business, and under Regs. Sec. 1.163(j)-1(b)(15)(iii) to be an excepted regulated utility trade or business, for purposes of the business interest deduction limitation under Sec. 163(j) (the Sec. 163(j)(7) elections).

Under the revenue procedure, taxpayers within its scope may withdraw a Sec. 163(j)(7) election for the tax year in which the election was made. It also allows a taxpayer that withdraws one of the Sec. 163(j)(7) elections to make a late election under Sec. 168(k)(7) to not deduct bonus depreciation with respect to a class of depreciable property that includes property affected by the withdrawal of the Sec. 163(j)(7) election.

In addition, the revenue procedure provides guidance under Regs. Sec. 1.163(j)-7(e) allowing a taxpayer to revoke or make a controlled foreign corporation group election without regard to the 60-month limitation under Regs. Sec. 1.163(j)-7(e)(5)(ii) for the first specified period of a specified group beginning after Dec. 31, 2024.

The guidance is effective March 18, 2026.

— To comment on this article or to suggest an idea for another article, contact Neil Amato at Neil.Amato@aicpa-cima.com.