IRS Form 8990

AIM Financial | Business Tax Preparation in Grand Rapids and West Michigan

Business owners often borrow money to purchase equipment, finance inventory, acquire property, or expand their operations. The interest paid on business loans may be deductible, but federal tax law places limits on the amount of business interest some taxpayers can deduct each year.

IRS Form 8990, Limitation on Business Interest Expense Under Section 163(j), helps eligible taxpayers calculate their allowable business interest deduction and determine how much interest expense must be carried forward to a future tax year.

For businesses in Grand Rapids, Kentwood, Wyoming, and throughout West Michigan, understanding this form can help with tax planning, financial reporting, and avoiding filing errors. AIM Financial provides tax preparation guidance to help businesses understand their tax obligations.

What Is IRS Form 8990?

Form 8990 is used to calculate the business interest deduction limitation under Section 163(j) of the Internal Revenue Code.

In general, when the limitation applies, the amount of deductible business interest expense is limited to the total of:

• Business interest income.
• 30% of adjusted taxable income (ATI).
• Certain floor plan financing interest expense.

The calculation can be affected by the taxpayer’s circumstances, the type of business, and special rules under current tax law.

Any business interest expense disallowed by the limitation is generally carried forward to a future tax year. Special rules apply to partnerships and their partners, so the treatment may differ depending on the type of business entity involved. <Cite refs={[“turn218911search0″,”turn218911search7”]}/>

Who May Need to File Form 8990?

Form 8990 may be required for individuals, corporations, partnerships, S corporations, and certain other taxpayers with business interest expense or related carryforward amounts.

However, not every small business needs to file this form.

A qualifying small business taxpayer may be exempt from the Section 163(j) limitation if it meets the applicable gross receipts test and is not considered a tax shelter under the relevant rules.

For tax years beginning in 2025, the IRS instructions generally use an average annual gross receipts threshold of $31 million over the preceding three tax years. The threshold and qualification rules should be checked for the specific tax year being filed.

Certain businesses may also qualify for exceptions involving an electing real property trade or business, an electing farming business, or certain regulated utility businesses.

Importantly, a pass-through entity that allocates excess taxable income or excess business interest income to its owners may have a Form 8990 filing requirement even when it has no current-year interest expense. <Cite refs={[“turn218911search0″,”turn218911search29”]}/>

How Does the Business Interest Expense Limitation Work?

Consider a business that has $100,000 in business interest expense and $10,000 in business interest income. Assume the business has $200,000 in adjusted taxable income and no floor plan financing interest.

For a simplified illustration, its limitation would be:

• Business interest income: $10,000
• 30% of adjusted taxable income: $60,000
• Floor plan financing interest: $0
• Total potential interest deduction under the limitation: $70,000

If Section 163(j) applies and no other special rules change the result, the business could deduct $70,000 of its $100,000 business interest expense for that year. The remaining $30,000 would generally be carried forward, subject to the applicable rules.

This example is for illustration only. Actual calculations may require adjustments to taxable income, allocation of interest among business activities, and consideration of other tax provisions.

How to Complete IRS Form 8990

The form includes several sections that help determine the amount of interest a taxpayer can deduct.

1. Calculate current-year business interest expense

Start by identifying interest expense properly allocated to a trade or business subject to Section 163(j). Personal interest, investment interest, and interest associated with excepted trades or businesses must be evaluated separately.

The amount entered should reflect the interest that would otherwise be deductible before applying the Section 163(j) limitation.

2. Include prior-year disallowed interest

If the taxpayer has a carryforward from a previous year, it must be considered under the applicable instructions.

Partnerships have special rules governing excess business interest expense allocated to partners, so a partnership interest holder should not automatically treat every carryforward as an ordinary business deduction.

3. Determine business interest income

Business interest income may increase the amount of interest expense that can be deducted. The taxpayer must identify the appropriate amount under the IRS definitions and instructions.

4. Calculate adjusted taxable income

Adjusted taxable income is a specially calculated amount used to determine the interest limitation. It is not necessarily the same as the taxable income shown on the final tax return.

The calculation requires adjustments specified by Section 163(j) and the applicable instructions.

For tax years beginning after 2024, legislation enacted in 2025 restored an add-back for qualifying depreciation, amortization, and depletion deductions when calculating adjusted taxable income. This change can affect the amount of interest expense that businesses are permitted to deduct. <Cite refs={[“turn218911search0″,”turn218911search30”]}/>

5. Calculate the deduction and carryforward

After completing the applicable calculations, determine the amount of business interest expense allowed for the current year and the amount carried forward.

Retain supporting schedules and calculations so the figures can be reconciled with the business’s accounting records and tax return.

Common Form 8990 Mistakes to Avoid

Businesses should watch for several common errors:

• Assuming all interest is deductible: Section 163(j) may limit the deduction even when the interest is a legitimate business expense.
• Misapplying the small business exception: Gross receipts, related businesses, and tax-shelter rules can affect eligibility.
• Using the wrong tax-year instructions: The law and form calculations can change between tax years.
• Overlooking carryforwards: Disallowed interest from prior years may need to be tracked and considered.
• Ignoring partnership rules: Partners may have additional reporting responsibilities for excess business interest expense.
• Failing to separate business activities: Interest associated with excepted businesses may receive different treatment.

Careful preparation is particularly important for businesses with multiple entities, substantial borrowing, or complex financing arrangements.

How AIM Financial Can Help With Business Tax Preparation

Business interest deductions can affect a company’s taxable income and overall tax liability. Understanding the rules before filing can help business owners prepare accurate returns and plan for future borrowing and investment decisions.

AIM Financial helps individuals and businesses understand tax reporting requirements, organize financial information, and prepare for complicated tax situations.

If your business has substantial loan interest, prior-year interest carryforwards, partnership investments, or questions about Form 8990, professional guidance can help you determine which rules apply.

For businesses in Grand Rapids, Kentwood, Wyoming, and throughout West Michigan, contact AIM Financial to discuss your business tax preparation needs.

AIM Financial — helping West Michigan businesses navigate tax reporting with greater clarity and confidence.

This article is for educational purposes only and is not legal or tax advice. Form 8990 requirements and deduction limits depend on the tax year, business structure, gross receipts, and other facts. Review current IRS instructions and consult a qualified tax professional regarding your situation.