What qualifies as a business interest expense?
According to IRC §163(j), “business interest” is defined as “any interest paid or accrued on indebtedness properly allocable to a trade or business.” It does not include investment income or (for taxable years beginning after 2025) interest capitalized under IRC §263(g) or IRC §263A(f).
“Business interest income” is defined as the amount of interest includible in the gross income of the taxpayer for the taxable year that is properly allocable to a nonexcepted trade or business.
“Business interest expense” is defined as interest expense that is properly allocable to a nonexcepted trade or business or that is floor plan financing interest expense. Both terms exclude investment income.
The current iteration of IRC §163(j) is considerably more encompassing than its predecessor; it applies regardless of whether:
- The…
