IRS Instruction 8990 – IRS Forms, Instructions, Pubs 2026 – In today’s complex tax landscape, businesses must navigate various deductions and limitations to optimize their tax strategies. One critical area is the deduction for business interest expenses, governed by Section 163(j) of the Internal Revenue Code. IRS Form 8990 plays a pivotal role in calculating these limitations, ensuring compliance while maximizing allowable deductions. This SEO-optimized guide breaks down the essentials of IRS Instruction 8990, including its purpose, filing requirements, recent updates, and practical tips for taxpayers. Whether you’re a small business owner, partnership, or corporation, understanding these instructions can help you manage carryforwards and avoid costly errors.
What Is IRS Form 8990 and Its Purpose?
IRS Form 8990, titled “Limitation on Business Interest Expense Under Section 163(j),” is designed to help taxpayers determine the deductible amount of business interest expense for the tax year and any excess to carry forward. The form enforces the rules under Section 163(j), which generally caps the deduction at the sum of:
- Business interest income,
- 30% of adjusted taxable income (ATI), and
- Floor plan financing interest expense.
Any disallowed business interest expense is carried forward to future years (with exceptions for partnerships, where it’s allocated as excess business interest expense to partners). This limitation applies after other tax rules, such as basis, at-risk, and passive activity loss limitations, and is computed before applying the qualified business income deduction under Section 199A.
The primary goal is to prevent excessive interest deductions that could erode the tax base, a provision strengthened by the Tax Cuts and Jobs Act (TCJA) and subsequent amendments. For detailed regulations, refer to Treasury Regulations sections 1.163(j)-1 through 1.163(j)-11.
Who Must File Form 8990?
Not every taxpayer with interest expenses needs to file Form 8990. Filing is required if you have:
- Business interest expense,
- A disallowed business interest expense carryforward from prior years, or
- Current or prior year excess business interest expense from a partnership.
This includes individuals, corporations, partnerships, S corporations, and even U.S. shareholders of controlled foreign corporations (CFCs) with relevant interest expenses. Pass-through entities must file if they’re allocating excess taxable income or excess business interest income to owners, even without their own interest expense.
Exclusions from Filing
Certain taxpayers are exempt:
- Small Business Taxpayers: Those meeting the gross receipts test (average annual gross receipts of $31 million or less for 2025, inflation-adjusted) and not classified as tax shelters. However, if they have excess business interest expense from partnerships, filing may still be necessary.
- Taxpayers with interest expenses solely from excepted trades or businesses, such as electing real property businesses, electing farming businesses, certain regulated utilities, or employee services.
- If a pass-through entity is exempt but an owner must file, the entity provides required information upon request.
Aggregation rules apply for gross receipts, including affiliates and controlled groups under Section 448(c). Tax shelters cannot qualify for the small business exemption.
Key Changes and Updates for 2026
Tax laws evolve, and Section 163(j) has seen significant adjustments. As of 2026:
- Public Law 119-21 (One Big Beautiful Bill Act): For tax years beginning after 2024, ATI computation now includes an add-back for deductions related to depreciation, amortization, or depletion. This is reflected on Line 11 of Form 8990.
- Expanded Floor Plan Financing: Interest on debt for trailers or campers designed for temporary living quarters (towed or affixed to motor vehicles) is now included, broadening eligibility for auto dealers and similar businesses.
- ATI Exclusions: For years after 2025, ATI no longer includes U.S. shareholder inclusions from CFCs, and capitalized interest (except under specific sections) is subject to limitations.
- Gross Receipts Threshold: Increased to $31 million for 2025 (relevant for 2026 filings based on prior years).
Stay informed via IRS.gov/Form8990 for post-publication changes. The form and instructions were revised in December 2025, ensuring alignment with these updates.
How to Calculate the Business Interest Expense Limitation?
The calculation on Form 8990 involves four main parts: business interest expense, ATI, business interest income, and the final limitation.
Step 1: Business Interest Expense (Part I, Section I)
- Enter current year business interest expense (Line 1), excluding floor plan financing and excepted trades.
- Add prior year disallowed carryforwards (Line 2).
- Subtract floor plan financing (Line 4) to get total subject to limitation (Line 5).
Step 2: Adjusted Taxable Income (ATI) (Part I, Section II)
Start with tentative taxable income (Line 6), then make additions (e.g., business interest expense, NOL deductions, depreciation add-backs post-2024) and subtractions (e.g., business interest income, non-business gains). ATI floors at zero but can be negative for CFC groups.
Step 3: Business Interest Income (Part I, Section III)
Include current year income (Line 23) and prior excess carryforwards (Line 24).
Step 4: Limitation Calculation (Part I, Section IV)
- Multiply ATI by 30% (Line 26).
- Add floor plan financing (Line 27).
- The allowable deduction is the lesser of this sum or total business interest expense (Line 30).
- Carry forward any disallowed amount (Line 31).
For partnerships, use Worksheets A and B to allocate excesses. CFCs may elect a safe-harbor using Worksheet C.
Special Rules and Considerations
- Elections for Excepted Businesses: Irrevocable elections for real property or farming businesses require attached statements and use of alternative depreciation systems (ADS).
- Allocation for Mixed Businesses: Use asset basis to allocate between excepted and non-excepted activities.
- CFCs and Consolidated Groups: Special rules apply, including group elections for combined limitations.
- Coordination with Other Deductions: Section 163(j) applies after most other limitations but before Section 199A.
Download IRS Instruction 8990 PDF
To access the full details and complete the form accurately, download the latest IRS Instruction 8990 PDF directly from the official IRS website. This Rev. December 2025 version includes all updates for 2026 filings: Download IRS Instruction 8990 PDF.
By following these IRS Form 8990 instructions, businesses can ensure compliance with Section 163(j) while optimizing deductions. Consult a tax professional for personalized advice, as this guide is for informational purposes only.