That answer is only if you are preparing a 1065 partnership return, or an 1120s return. If you are getting the prompt while doing your personal taxes it is triggered by your K-1’s. If have Line 13, Code K on the K-1, Excess business interest expense, you are required to file form 8990. You want to do that. That excess business interest expense reduces your tax basis, but is not deductible in the current year, it is carried forward by you, not the partnership, until a future year where there is excess taxable income (Line 20 Code AE) or excess business interest income (Line 20 Code AF) in that year FROM THE SAME entity. Those two amounts, Code AE and Code AF do not carry forward year to year, but are used to calculate that you are not subject to any further section 163(j) limitations. (Basically make less than $25 million including those AE and AF amounts, and/or don’t own a foreign entity.
I’ll add the caveat that I’m not a CPA, I’ve read everything I can find on the 8990, including the tax code.
