The Internal Revenue Service has released updated Frequently Asked Questions (FAQs) addressing two critical tax provisions impacted by recent legislative changes under the One Big Beautiful Bill Act (H.R. 1, P.L. 119-21). The updates focus on:
- Section 163(j) — Limitation on deduction of business interest expense
- Section 36B — Premium Tax Credit related to health insurance coverage
These clarifications are intended to align administrative guidance with statutory amendments and reduce interpretational ambiguity for taxpayers and practitioners.
1. Business Interest Limitation – Section 163(j)
The IRS updated its guidance to reflect significant modifications to how the business interest expense limitation is computed and applied.
Key changes effective for tax years beginning after December 31, 2024
- Restoration of depreciation, amortization, and depletion add-backs Adjusted Taxable Income (ATI) once again allows add-backs for depreciation, amortization, and depletion. This effectively relaxes the limitation and increases the deductible interest capacity for capital-intensive businesses.
- Expanded definition of floor plan financing interest The scope now includes certain trailers and campers held for sale or lease, expanding the category of interest expense that remains fully deductible outside the 163(j) limitation.
Key changes effective for tax years beginning after December 31, 2025
- Inclusion of capitalized interest in limitation computation Business interest expense subject to limitation now explicitly includes interest that is incurred and capitalized during the year, except where capitalization is mandated under Sections 263(g) or 263A(f).
- Exclusion of CFC inclusion items from ATI Income inclusions under Sections 951(a), 951A (GILTI), and Section 78 gross-ups, along with related deductions, are excluded from ATI. This materially impacts multinational groups and alters interest deductibility planning for entities with foreign operations.
Practical impact
These revisions require businesses to revisit financing structures, interest capitalization policies, and cross-border tax planning models. Entities with leveraged balance sheets or controlled foreign corporations should recalibrate projections and compliance processes accordingly.
2. Premium Tax Credit – Section 36B
The IRS also updated FAQs related to the Premium Tax Credit (PTC), reflecting post-2025 statutory changes.
Key updates
- Elimination of repayment caps on excess advance credits For tax years beginning after December 31, 2025, taxpayers are no longer subject to statutory limits on repayment when advance Premium Tax Credit payments exceed the allowable credit. This represents a structural shift in risk allocation for Marketplace participants.
- Removal of outdated guidance FAQ content specific to temporary pandemic-era rules (2020–2021) has been removed, simplifying and modernizing the guidance framework.
Practical impact
Tax professionals should factor the removal of repayment caps into client advisory, especially for individuals with variable income levels who rely on advance premium credits. Reconciliation accuracy and income forecasting become significantly more critical.
Authority and Reliance Considerations
The IRS has clarified that these FAQs are informational guidance only and have not been published in the Internal Revenue Bulletin. As such:
- They do not carry precedential authority
- They cannot override statutory or regulatory provisions
However, the IRS has indicated that reasonable-cause penalty relief will be available where taxpayers or preparers rely on these FAQs in good faith and in a reasonable manner.
Advisory Takeaways
Tax departments and advisors should proactively:
- Update interest limitation models and deferred tax computations
- Reassess capital structure and debt planning strategies
- Align multinational tax calculations with revised ATI definitions
- Revise individual tax planning processes for Marketplace insurance clients
- Update internal compliance checklists and client communications