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Form 8990, business interest expense limitation

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Level 2
last updated ‎April 02, 2019 5:45 PM

I have an S-corporation who doesn't meet the small business taxpayer exception for form 8990.  When completing form 8990, there is no limitation on the s-corp's business interest expense which is very small.  Part III lines 38-41 populate for excess taxable income.   Do I report a portion of line 41 on each s-corp owner's K-1 based on their ownership share?   Do the owners then have to report this somewhere on their form 1040?  When is Schedule B completed?  I am having trouble following the form instructions so any clarification would be appreciated.

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Employee
Employee
last updated ‎April 02, 2019 5:45 PM

Form 8990 is to figure the amount of business interest expense you can deduct and the amount to carryforward to the next year.   If section 163(j) applies to you, the business interest expense deduction allowed for the tax year is limited to the sum of:

1. Business interest income,
2. 30% of the adjusted taxable income, and
3. Floor plan financing interest expense.

If your interest expense is small and doesn't exceed 30% of the taxable income, there is no limitation. 

However, you still have reporting requirements. The instructions say a pass-through entity (subject to section 163(j)) allocating excess taxable income or excess business interest income to its owners (that is, a pass-through entity that is not a small business taxpayer) must file Form 8990, regardless of whether it has any interest expense. 

Page 4 of the instructions indicate you include these amounts for the shareholder as supplemental pass thru information. " you must include your share of the pass-through business interest expense, adjusted taxable income, and business interest income on lines 1, 13, and 23, respectively. You must request the pass-through entity to separately state, in sufficient detail, the items necessary to 
figure these amounts."

Some shareholders may be subject to the 8990 limitations and use these amounts to calc their aggregate income & limitations.  Good luck. 

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2 Replies 2
Highlighted
Level 1
last updated ‎April 02, 2019 5:45 PM

I wish I knew.  I am having the same problem.  I believe it may go on form 8960 for the individuals, but am unable to find the answer myself!

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Highlighted
Employee
Employee
last updated ‎April 02, 2019 5:45 PM

Form 8990 is to figure the amount of business interest expense you can deduct and the amount to carryforward to the next year.   If section 163(j) applies to you, the business interest expense deduction allowed for the tax year is limited to the sum of:

1. Business interest income,
2. 30% of the adjusted taxable income, and
3. Floor plan financing interest expense.

If your interest expense is small and doesn't exceed 30% of the taxable income, there is no limitation. 

However, you still have reporting requirements. The instructions say a pass-through entity (subject to section 163(j)) allocating excess taxable income or excess business interest income to its owners (that is, a pass-through entity that is not a small business taxpayer) must file Form 8990, regardless of whether it has any interest expense. 

Page 4 of the instructions indicate you include these amounts for the shareholder as supplemental pass thru information. " you must include your share of the pass-through business interest expense, adjusted taxable income, and business interest income on lines 1, 13, and 23, respectively. You must request the pass-through entity to separately state, in sufficient detail, the items necessary to 
figure these amounts."

Some shareholders may be subject to the 8990 limitations and use these amounts to calc their aggregate income & limitations.  Good luck. 

View solution in original post