skip to main content


Real Estate

Discover UHY’s next level of audit, tax and advisory services to real estate owners, investors, managers, and real estate fund sponsors. We deliver practical advice in financial and tax reporting solutions to real estate owners, operators and investors.



June 14, 2018


Before tax reform, there were not many limitations on a business's ability to deduct interest expense on their tax return. However, beginning in 2018, tax reform will significantly alter the ability to deduct business interest expense for a great many taxpayers.

Generally, under a revamped Section 163(j), business interest expense that can be deducted will be limited to 30% of the taxpayer's adjusted taxable income. Let's address a few questions related to this limitation:

  • What is adjusted taxable income? For the years 2018-2021, adjusted taxable income is taxable income with certain addbacks such as interest, depreciation and amortization. The calculation of adjusted taxable income will be the same for years after 2021, with the exception that there will be no add back for depreciation or amortization. As a result, after 2021 it is expected that adjusted taxable income will be lower than previous years resulting in a potentially smaller interest expense deduction.
  • Is everyone subject to this limitation? All taxpayers, no matter how organized, that have business interest expense will be subject to this calculation. However, a few taxpayers are not subject to the interest limitations calculation, including small businesses, electing real property trade or businesses, businesses that have floor plan financing, and electing farming businesses. 
  • What is a small business? Generally, a small business is a taxpayer that has average gross receipts over the prior three years of less than $25 million. While that seems straight forward, related party rules come into play that require an aggregation of all related entities to determine the $25 million threshold.
  • What is an electing real property trade or business? A real property trade or business is any business in the development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing or brokerage of real property which makes an irrevocable election to be exempt from Section 163(j).
  • Are there consequences of not being subject to the interest limitations? There are no consequences to small businesses, but for real estate, farming, or businesses with floor plan financing, there is an impact on the available methods of tax depreciation, including possibly the ability to take bonus depreciation.
  • What happens if you are subject to the interest limitations? Depends on the type of entity, but generally the amount of interest in excess of the limitation will be disallowed as a deduction in the current year and will be carried forward to the subsequent year(s) when it will be subject to the same limitation calculations.

There are many additional nuances to these interest limitation rules. However, as with many tax reform items, proper and timely planning can ensure the maximum interest deduction by minimizing the possible impact of these interest limitation provisions. 

For more information contact us in one of our many locations.

Hide Firm Disclaimer


UHY LLP is a licensed independent CPA firm that performs attest services in an alternative practice structure with UHY Advisors, Inc., and its subsidiary entities. UHY Advisors, Inc.’s subsidiaries, including UHY Consulting, Inc., provide tax and business consulting services through wholly owned subsidiary entities that operate under the name of “UHY Advisors” and “UHY Consulting”. UHY Advisors, Inc., and its subsidiary entities are not licensed CPA firms. UHY LLP, UHY Advisors, Inc. and UHY Consulting are U.S. members of Urbach Hacker Young International Limited, a UK company, and form part of the international UHY network of legally independent accounting and consulting firms. “UHY” is the brand name for the UHY international network. Any services described herein are provided by UHY LLP, UHY Advisors and/or UHY Consulting (as the case may be) and not by UHY or any other member firm of UHY. Neither UHY nor any member of UHY has any liability for services provided by other members.

On this website, (i) the term "our firm", "we" and terms of similar import, denote the alternative practice structure conducted by UHY LLP and UHY Advisors, Inc. and its subsidiary entities, and (ii) the term "UHYI" denotes the UHY international network, in each case as more fully described in the preceding paragraph.