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December 2018

Section 163(j) Real Property Safe Harbor

 

A safe harbor is provided in Rev. Proc. 2018-59 that allows taxpayers to treat infrastructure trades or businesses as an electing real property trade or business not subject to the business interest deduction limit of Section 163(j), but they must then use the alternative depreciation system for assets specified in the Tax Cuts and Jobs Act (TCJA).
https://www.irs.gov/pub/irs-drop/rp-18-59.pdf

 

 


Proposed Rules on New Business Interest Expense Guidance

 

The IRS issued proposed regulations for a provision of the Tax Cuts and Jobs Act (TCJA) that limits the business interest expense deduction for certain taxpayers. It incorporates new Form 8990, Limitation on Business Interest Expense Under Section 163(j), to calculate and report the deduction and amount of disallowed business interest expense to carry forward to the next tax year.

https://www.irs.gov/pub/irs-drop/REG-106089-18-NPRM.pdf


The Other Home Mortgage Interest Deduction Limit

 

With higher credit card interest rates and the end of deductible home equity loan interest, Fannie Mae just reported that in the last quarter 80 percent of mortgage refinancings were cash out transactions. Some taxpayers may be using the net proceeds to pay down credit cards, pay college bills, buy a car, or for other purposes unrelated to the acquisition or substantial improvement of a residence. Clients may believe that because it is just one payment and it is all secured by the residence, the interest is all deductible. However, the interest on cash taken out for non-home related expenses is not deductible. In effect, the refinancing is treated like two different loans, one for the original acquisition or for the substantial improvement of the residence and the other for debt that is not qualified for the deduction. 

The 2018 Schedule A will include a new box to check if not all proceeds from a home mortgage were used to buy, build or substantially improve a home. In order to be prepared to answer this question, it should be included in your organizer to the taxpayer. This may be bad news to clients who have already refinanced without knowing the consequences.