What is Form 8990? Who must file Form 8990?
Per the IRS, Form 8990 is used to calculate the amount of business interest expense that can be deducted and the amount to carry forward to the next year. Beginning in tax year 2018, Form 8990, "Limitation on Business Interest Expense Under Section 163(j)", is available for use and filing in the 1040, 1120, 1120-S, and 1065 return types.
The CARES Act, section 2306, modified the limitation on business interest expense for taxable years beginning in 2019 and 2020 by providing an option for certain taxpayers to elect for the Limitation on Business Interest Expense on line 26, page 2, of Form 8990 to be calculated at 50% rather than 30%. To elect the 50% limitation, check the box at the bottom of the 8990 screen. See Related Links below for details.
The data entry screen 8990 is located on:
- the Other Forms tab in a 1040, 1065, and 1120-S.
- the second Other Forms tab in an 1120.
When completing screen 8990 in Drake Tax, be sure to read the Important disclaimer at the top of the screen for guidance on entering the data. See the 8990 Instructions for details.
Note 654 will be produced on any individual, corporate, or tax exempt return where the business income exceeds $10 million - you should review the return to determine if Form 8990 would be needed. The note text is as follows:
POSSIBLE LIMITATION ON BUSINESS INTEREST EXPENSE: A new provision in the Tax Cuts and Jobs Act subjects certain taxpayers to a limitation on how much business interest expense can be deducted each year. Small business taxpayers are not subject to this limitation and should ignore this return note. A small business taxpayer is a taxpayer that is not a tax shelter (as defined in section 448(d)(3)) and has average annual gross receipts of $25 million or less for the three prior tax years under the gross receipts test of section 448(c).
If this taxpayer has average annual gross receipts for the three prior tax years of $25 million or more, Form 8990, Limitation on Business Interest Expense Under Section 163(j), must be completed, and some of the business interest expense may not be deductible in the current year. Form 8990 is not yet available in Drake Tax ‘18, but will be made available in a future update. The taxpayer/business should file Form 4868/7004/8868, Application for Automatic Extension of Time To File, before the filing deadline to avoid a failure to file penalty.
“Business interest expense” means any interest paid or accrued that is properly allocable to a trade or business. Business interest expense does not include investment interest.
Small business taxpayers are not subject to the limitations on Form 8990. If the taxpayer falls into this category, they would not be required to file Form 8990 or wait on the forms in Drake to be finalized. Per the instructions:
"A small business taxpayer is not subject to the section 163(j) limitation and is generally not required to file Form 8990.
A small business taxpayer is a taxpayer that is not a tax shelter (as defined in section 448(d)(3)) and has average annual gross receipts of $25 million or less for the 3 prior tax years under the gross receipts test of section 448(c).
A pass-through entity that is a small business taxpayer does not allocate excess taxable income, excess business interest income, or excess business interest to its owners."
In addition, the section on "who must file" indicates that some taxpayers are not subject to filing this form. See page 1 of the 8990 Instructions for further information.