How to generate Form 8990 in ProConnect Tax

The program will try to determine whether 8990 is required based on your entries on the Other Information (Schedule B) screen, in the Gross Receipts for the 3 Tax Years Preceding the Current Tax Year subsection. A critical diagnostic will appear if these entries indicate the form is required, but it’s not generated with the return.

To generate Form 8990 because the partnership is required to file:

1. From the left of the screen, select Other Forms and choose Limitation on Business Interest Expense (8990).
2. Mark the checkbox labeled Partnership is subject to the section 163(j) limitation.
3. If desired, mark the checkbox labeled Automatically complete Form 8990, Part I, and calculate allowed/disallowed interest amounts on return.
4. Mark the checkboxes for any applicable elections.
5. Complete the applicable entries.
   • If you checked the box to automatically complete Part I of the form, all fields with an asterisk can be left blank. The program will calculate these amounts.

The limitation calculated on Form 8990 will automatically be applied to interest amounts that flow to the return if you had the program automatically calculate for you. A worksheet will print detailing the Interest Expense Before and After Section 163(j) Limitation for each activity.

If you chose to apply the limitation manually:

You must go to each activity’s input screen and indicate the allowed amount of business interest expense. For example, to limit the interest expense reported on Form 1065, line 15:

1. From the left of the screen, select Ordinary Income and choose Deductions.
2. Scroll down to the Interest subsection.
3. Enter the amount in Allowed amount, if limited on Form 8990 (override, if program is calculating).

This input is available on other activities such as farm income and expenses, rental real estate, and passthrough K-1s. 

If the partnership isn’t required to file, but a partner may be:

1. From the left of the screen, select Other Forms and choose Limitation on Business Interest Expense (8990).
2. Leave the Subject to Section 163(j) Limitation subsection blank. 
3. Scroll down to the Partnership is Not Subject to Section 163(j) Limitation subsection.
4. Mark the checkbox labeled Partners could be subject to section 163(j) limitation. 
5. If desired, mark the checkbox labeled Carry amounts from the return to Form 8990 Worksheet.
6. Complete the applicable entries.
   • If you checked the box to carry amounts from the return to the worksheet, all fields with an asterisk can be left blank. The program will calculate these amounts.

A worksheet version of Form 8990 will generate, but won’t be filed with the return. Each partner’s share of business interest income and expense will be reported on a statement for Schedule K-1, box 20. If necessary, you can specially allocate these amounts on the Special Allocations tab.

The program will try to determine whether 8990 is required based on your entries on the Miscellaneous Information screen, in the Business Interest Expense section. A critical diagnostic will appear if these entries indicate the form is required, but it’s not generated with the return.

To generate Form 8990 because the S corporation is required to file:

1. From the left of the screen, select Other Forms and choose Limitation on Business Interest Expense (8990).
2. Mark the checkbox labeled S corporation is subject to the section 163(j) limitation.
3. If desired, mark the checkbox Automatically complete Form 8990, Part I, and calculate allowed/disallowed interest amounts on return.
4. Mark the checkbox for any applicable elections.
5. Leave the S corporation is Not Subject to Section 163(j) Limitation subsection blank.
6. Complete the applicable entries.
   1. If you checked the box to automatically complete Part I of the form, all fields with an asterisk can be left blank. The program will calculate these amounts.

The limitation calculated on Form 8990 will automatically be applied to interest amounts that flow to the return if you had the program automatically calculate for you. A worksheet will print detailing the Interest Expense Before and After Section 163(j) Limitation for each activity.

If you chose to apply the limitation manually:

You must go to each activity’s input screen and indicate the allowed amount of business interest expense. For example, to limit the interest expense reported on Form 1120S, line 13:

1. From the left of the screen, select Ordinary Income and choose Deductions.
2. Enter the amount in Allowed amount, if limited on Form 8990 (override, if program is calculating).

This input is available on other activities such as farm income and expenses, rental real estate, and passthrough K-1s. 

If the S-corporation isn’t required to file, but a shareholder may be:

1. From the left of the screen, select Other Forms and choose Limitation on Business Interest Expense (8990).
2. Leave the Subject to Section 163(j) Limitation subsection blank. 
3. Scroll down to the S corporation is Not Subject to Section 163(j) Limitation subsection.
4. Mark the checkbox labeled Shareholders could be subject to section 163(j) limitation. 
5. If desired, mark the checkbox Carry amounts from the return to Form 8990 Worksheet.
6. Complete the applicable entries.
   • If you checked the box to carry amounts from the return to the worksheet, all fields with an asterisk can be left blank. The program will calculate these amounts.

A worksheet version of Form 8990 will generate, but won’t be filed with the return. 

Each shareholder’s portion of business interest income, adjusted taxable income, and expense will be reported on a statement for Schedule K-1, box 17. 

If necessary, you can override the amount reported to each shareholder on the Schedule K-1 Overrides, under Other Information, using the Not Subject to Section 163(J) Limitations fields.

The program will try to determine whether 8990 is required based on your entries on the Miscellaneous Information screen, in the Business Interest Expense section, as well as your entries for the prior three years’ gross receipts on the Base Erosion Tax (8991) screen. A critical diagnostic will appear if these entries indicate the form is required, but it’s not generated with the return.

1. From the left of the screen, select Other Forms and choose Limitation on Business Interest Expense (8990).
2. Mark the checkbox labeled Corporation is subject to the section 163(j) limitation.
3. If desired, mark the checkbox labeled Automatically complete Form 8990, Part I, and calculate allowed/disallowed interest amounts on return.
4. Mark the checkbox for any applicable elections.
5. Complete the applicable entries.
   • If you checked the box to automatically complete Part I of the form, all fields with an asterisk can be left blank. The program will calculate these amounts.

The limitation calculated on Form 8990 will automatically be applied to interest amounts that flow to the return if you had the program automatically calculate for you. A worksheet will print detailing the Interest Expense Before and After Section 163(j) Limitation for each activity.

If you chose to apply the limitation manually:

You must go to each activity’s input screen and indicate the allowed amount of business interest expense. For example, to limit the interest expense reported on Form 1120, line 5:

1. From the left of the screen, select Deductions and choose Deductions.
2. Scroll down to the Interest subsection.
3. Enter the amount in Allowed amount, if limited on Form 8990 (override, if program is calculating).

This input is available on other activities, such as farm activities, rental/other passive activities, and passthrough K-1s. 

First, if the individual has any excess business interest from a partnership or S corporation K-1, make the appropriate entries on the Passthrough K-1’s screen. These will be used to complete Form 8990 Schedule A and Schedule B. 

To enter excess business interest from a partnership:

1. From the left of the screen, select Income and choose Passthrough K-1’s.
2. Select Partnership Info (1065 K-1).
3. From the top of the screen, select Lines 11-20.
4. Scroll down to the Line 20 - Other section.
5. Enter the amounts from the K-1 in (20AE) Excess taxable income and (20AF) Excess business interest income.

Carryovers from prior years should be entered under Basis Carryovers in the Excess business interest expense field.

To enter excess business interest from an S corporation:

1. From the left of the screen, select Income and choose Passthrough K-1’s.
2. Select S-Corp Info (1120S K-1).
3. From the top of the screen, select Lines 11-17.
4. Scroll down to the Line 17 - Other Information section.
5. Enter the amounts from the K-1 in (17AA) Excess taxable income and (17AB) Excess business interest income.

Next, trigger Form 8990 and review K-1 entries:

1. From the left of the screen, select Miscellaneous Forms and choose Limitation on Business Interest Expense (8990).
2. Mark the checkbox labeled Individual subject to section 163(j) limitation (review the gross receipts test in Form 8990 instructions each year).
3. Go to the Check Return tab.
4. Review the portions of the 8990 that are generated from your K-1 entries for accuracy.
5. Return to the Limitation on Business Interest Expense (8990) screen.
6. Mark the checkbox for any applicable elections.
7. Complete all other applicable entries on this screen.

Amounts entered for Form 8890 won’t affect any other part of the tax return. If any of the taxpayer’s business interest expense is disallowed (Form 8990, line 31), then the allowable business interest expense deduction reported on line 30 must be manually allocated to each source in proportion to the amount of business interest expense from that source. 

You must manually reduce your entries for interest expenses on the applicable activity’s input screen, and attach an itemized schedule showing the amount and line item on the tax return where business interest expense is being deducted. You can enter this at the bottom of the 8990 screen.

1. From the left of the screen, select Miscellaneous Forms and choose Limitation on Business Interest Expense (8990).
2. Mark the checkbox labeled Organization subject to section 163(j) limitation (review the gross receipts test in Form 8990 instructions each year).
3. Mark the checkbox for any applicable elections.
4. Complete all other applicable entries on this screen.

Amounts entered for Form 8990 won’t affect any other part of the tax return. If any of the organization’s business interest expense is disallowed (Form 8990, line 31), then the allowable business interest expense deduction reported on line 30 must be manually allocated to each source in proportion to the amount of business interest expense from that source. 

You must manually reduce your entries for interest expenses on the applicable activity’s input screen, and attach an itemized schedule showing the amount and line item on the tax return where business interest expense is being deducted. You can enter this at the bottom of the 8990 screen.