---
title: "Screen whether section 163(j) limits the deduction for business interest"
url: "https://ailawframework.com/practice/taxation/screen-whether-the-thin-capitalisation-rules-limit-the-debt-deductions/united-states"
type: "task_jurisdiction_version"
site: "AI Law Framework"
id: "A26-PE20261022-3-US"
practice_area: "Taxation"
tier: "yellow"
lawyer_review: "required"
jurisdictions: ["US"]
last_reviewed: "2026-10-22"
---

# Screen whether section 163(j) limits the deduction for business interest

> List business interest expense, business interest income, and whether the taxpayer is an exempt small business or an excepted trade. Do not compute the limitation amount. Leave adjusted taxable income to the lawyer.

Canonical page: https://ailawframework.com/practice/taxation/screen-whether-the-thin-capitalisation-rules-limit-the-debt-deductions/united-states  
Last reviewed: 2026-10-22

Site index for agents: https://ailawframework.com/llms.txt

## Key facts

| Fact | Value |
| --- | --- |
| Practice area | [Taxation](https://ailawframework.com/practice/taxation.md) |
| Human involvement | Yellow: Lawyer and AI draft together |
| How AI is used | List business interest expense, business interest income, and whether the taxpayer is an exempt small business or an excepted trade. Do not compute the limitation amount. Leave adjusted taxable income to the lawyer. |
| What the lawyer must review | 26 U.S.C. § 163(j) provides that the deduction for business interest shall not exceed the sum of the taxpayer's business interest income, 30 percent of adjusted taxable income, and the floor plan financing interest the subsection includes. The IRS FAQ states the same three-part sum and says that, for taxable years beginning after December 31, 2017, the limitation applies to taxpayers with business interest expense other than certain small businesses that meet the gross receipts test in section 448(c). The FAQ says that test uses average annual gross receipts of $25 million or less in the previous three years, adjusted for inflation: $30 million for 2024, $31 million for 2025, and $32 million for 2026. Employee services, certain electing real-property and farming businesses, and certain regulated utilities are excepted. |
| Written for | United States |
| Applies to | [Screen whether the thin capitalisation rules limit the debt deductions](https://ailawframework.com/practice/taxation/screen-whether-the-thin-capitalisation-rules-limit-the-debt-deductions.md) |

## Checking plan

- What the AI does: List business interest expense, business interest income, and whether the taxpayer is an exempt small business or an excepted trade. Do not compute the limitation amount. Leave adjusted taxable income to the lawyer.
- Basis: Checked against the linked sources on 22 October 2026. Confirm the current instrument before reliance.

## Notes

- Disallowed business interest is carried forward. The statute treats the disallowed amount as business interest paid or accrued in the next year, with a different partnership rule.
- The FAQ says an election to be an excepted real-property or farming business is generally irrevocable. The lawyer checks Revenue Procedure 2026-17 before assuming it can be withdrawn.

## Sources

- [IRS: Questions and answers about the limitation on the deduction for business interest expense](https://www.irs.gov/newsroom/questions-and-answers-about-the-limitation-on-the-deduction-for-business-interest-expense) (checked 2026-10-22)
- [26 U.S. Code § 163 - Interest](https://www.law.cornell.edu/uscode/text/26/163) (checked 2026-10-22)

*Practice guidance for planning and review. Confirm current primary sources and the requirements of the actual matter. This is general information, not legal advice.*