Links Between Worlds: Old Exceptions To New Interest Deduction Limitations

170 Tax Notes Federal 1353

24 Pages Posted: 31 Mar 2021 Last revised: 2 Apr 2021

Date Written: March 1, 2021


The Tax Cuts and Jobs Act of 2017 (P.L. 115-97) is a tax reform and simplification law that enacted rules to severely limit taxpayers’ ability to deduct some business interest expenses. This limitation, in new section 163(j), has both substantive tax effects and significant implementation costs, especially after Treasury and the IRS issued several hundred pages of final regulations in late 2020 and early 2021.For example, a partnership must use an 11-step process to allocate deductible business interest expense, disallowed excess business interest expense, and other section 163(j) items to its partners in some cases.

There are three important exceptions for investment interest, small businesses, and real property businesses, which have their own exceptions. The exceptions are based on existing tax provisions, which already have ample guidance and should be relatively straightforward to apply.

This article is a sequel and remake of my article from over two years ago, “Links to the Past: Old Exceptions to New Interest Deduction Limitations.” Much like how one can enjoy The Legend of Zelda: A Link Between Worlds on the Nintendo 3DS without having played its predecessor The Legend of Zelda: A Link to the Past on the Super Nintendo, the prior article is not required reading for the section 163(j) adventurer.

Keywords: Tax Simplification, 163(j), Business Interest, Small Business, Adventure, Zelda, the Bachelor, Retrotaxation

Suggested Citation

Zhang, Libin, Links Between Worlds: Old Exceptions To New Interest Deduction Limitations (March 1, 2021). 170 Tax Notes Federal 1353, Available at SSRN:

Libin Zhang (Contact Author)

Fried Frank ( email )

One New York Plaza
New York, NY NY 10004
United States

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