The Internal Revenue Service (IRS) today issued Revenue Procedure 2020-22, which provides guidance under Internal Revenue Code section 163(j) regarding elections to be a real property or farming trade or business under the Coronavirus, Aid, Relief, and Economic Security Act (CARES) Act (P.L. 119-136). It also instructs on the "time and manner for making three elections under section 2306 of the CARES Act relating to the section 163(j) limitation," the IRS explains.

Under the CARES Act, the limit on interest deductions was increased from 30 percent to 50 percent in 2019 and 2020. Taxpayers are also allowed to use 2019 income for the 2020 limitation.

The IRS explains that today's guidance "allows certain taxpayers to make a late election, or to withdraw an election, under section 163(j)(7)(B) or 163(j)(7)(C), as applicable, on an amended Federal income tax return, an amended Form 1065, or an administrative adjustment request under section 6227 of the Code (AAR)."

The guidance outlines when and how certain taxpayers can elect:

1. Out of the 50 percent adjusted taxable income (ATI) limitation for taxable years beginning in 2019 and 2020;
2. To use the taxpayer's ATI for the last taxable year beginning in 2019 to calculate the taxpayer's section 163(j) limitation for taxable year 2020; and
3. Out of deducting 50 percent of excess business interest expense (EBIE) for taxable years beginning in 2020 without limitation.

The 14-page text of Revenue Procedure 2020-22 is posted here.

The IRS is still planning to issue final regulations as well as additional proposed regulations under section 163(j) on the broader implementation of changes enacted as part of the Tax Cuts and Jobs Act enacted in late 2017.

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