Form 8990 works out how much business interest expense you can deduct under section 163(j) and how much you carry forward. The deduction is capped at your business interest income, plus 30% of adjusted taxable income, plus floor plan financing interest. Most small businesses don't file it: for tax years beginning in 2025, a business with average annual gross receipts of $31 million or less over the prior 3 years is exempt.
This guide follows the IRS instructions for Form 8990 revised in December 2025, as of October 2026. Interest rules change often, so read the current instructions before filing.
Who has to file Form 8990
Any taxpayer with business interest expense, a disallowed business interest expense carryforward, or current or prior year excess business interest expense generally has to file, unless an exclusion applies. That covers individuals, corporations, partnerships and S corporations.
- A partnership or S corporation that passes excess taxable income or excess business interest income to its owners files, even with no interest expense.
- A US shareholder of an applicable controlled foreign corporation with business interest expense attaches a Form 8990 to each Form 5471.
- A regulated investment company paying section 163(j) interest dividends files.
Who doesn't need it
You aren't required to file if you're a small business taxpayer with no excess business interest expense from a partnership, or if your interest expense comes only from excepted trades or businesses:
- Providing services as an employee.
- An electing real property trade or business.
- An electing farming business.
- Certain regulated utility businesses.
A small business taxpayer is one that isn't a tax shelter and passes the gross receipts test. Add gross receipts for the 3 prior tax years and divide by 3. For tax years beginning in 2025, the threshold is $31 million. For individuals, wages, Social Security and disability benefits don't count as gross receipts, but your share of a partnership's or S corporation's receipts does.
The limit in one table
| Part of the limit | What it means |
|---|---|
| Business interest income | Interest income allocable to a trade or business, not investment income |
| 30% of ATI | The applicable percentage of adjusted taxable income |
| Floor plan financing interest | Interest on debt that funds vehicle inventory held for sale or lease, secured by that inventory |
| Anything above the total | Carried forward to next year as disallowed business interest expense |
What changed for 2025
This is the part many owners haven't caught up with. The One Big Beautiful Bill Act changed how adjusted taxable income is worked out. For tax years beginning after 2024, you add back deductions for depreciation, amortization and depletion when computing ATI, and Form 8990 line 11 was revised for it.
A higher ATI means a higher 30% cap, so capital-heavy businesses that hit the limit in recent years may find more of their interest is deductible. The same law also expanded floor plan financing to cover trailers and campers designed for recreational, camping or seasonal use.
Two more changes apply for tax years beginning after 2025: the limit will generally include capitalized interest, except interest capitalized under sections 263(g) and 263A(f), and ATI will exclude US shareholder inclusions from controlled foreign corporations.
How to work through the form
- Categorize interest first under the tracing rules, so only business interest goes through section 163(j). Investment and personal interest have their own rules.
- Start from tentative taxable income, which is taxable income computed as if the limit didn't exist.
- Adjust it to ATI: take out non-business items, business interest income and expense and any net operating loss deduction, and add back depreciation, amortization and depletion for 2025.
- Multiply ATI by 30%, then add business interest income and floor plan financing interest.
- Deduct business interest up to that figure and carry the rest forward.
Terms you'll meet on the form
| Term | Meaning |
|---|---|
| Tentative taxable income | Taxable income worked out as if section 163(j) didn't exist, so no prior-year carryforwards |
| Adjusted taxable income (ATI) | Tentative taxable income without non-business items, business interest and the NOL deduction, with the 2025 add-backs |
| Excess taxable income | The part of a partnership's or S corporation's ATI it didn't need to support its own interest deduction, passed to owners |
| Excess business interest income | Business interest income above business interest expense, passed to owners |
| Excess business interest expense | A partnership's disallowed interest, allocated to partners |
Those pass-through amounts matter because owners use them on their own Form 8990. A partnership that isn't required to file because it's a small business taxpayer must still give a partner the information they need, on request, if that partner has to file.
Partnerships and elections
When a partnership hits the limit, the disallowed interest isn't carried forward by the partnership. It's allocated to the partners as excess business interest expense, and it's subject to the partner basis rules. A real property or farming business can elect out of section 163(j), but the election is irrevocable and you then have to use the alternative depreciation system for certain property and can't take the special depreciation allowance on it.
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Form 8990 usually travels with the main return, such as Form 1065 for a partnership or Form 1120 for a corporation.
The verdict
If your business averages $31 million or less in gross receipts and isn't a tax shelter, you can usually ignore Form 8990. If you're above it, or a partner in a business that is, the 2025 return is worth a fresh look: the depreciation add-back can raise your cap. Ask your preparer to run the form before assuming last year's carryforward still applies the same way.
Frequently asked questions
Who is exempt from Form 8990?
A small business taxpayer that isn't a tax shelter and has average annual gross receipts of $31 million or less for the 3 prior tax years, for tax years beginning in 2025, and has no excess business interest expense from a partnership.
What is the section 163(j) limit?
Business interest income, plus 30% of adjusted taxable income, plus floor plan financing interest expense. Anything above that is carried forward.
What changed on Form 8990 for 2025?
For tax years beginning after 2024, deductions for depreciation, amortization and depletion are added back when computing adjusted taxable income, which can raise the 30% cap.
Does a partnership carry forward disallowed interest?
No. It allocates the disallowed amount to its partners as excess business interest expense.
Can a real estate business opt out of section 163(j)?
Yes. An electing real property trade or business can elect out, but the election is irrevocable and requires the alternative depreciation system for certain property.
