Form 8990 is prompted on a 1065 Partnership return by the answers to question 24, and an 1120S S Corp by the answers to question 10. For a personal 1040 return it’s prompted by your K-1 entries, specifically Line 13, Code K, Excess Business Interest Expense, Line 20 AE, Excess Taxable Income, and Line 20 AF, Excess Business Interest Income. These codes are generated when the business you got the K-1 from was limited in their full deduction of Business Interest Income by the Section 163(j) limitations in the new tax code. Most likely, they made over $25 million in gross receipts, but there are other criteria.
The important one to you especially is Line 13 Code K, Excess Business Interest Expense. This is your share of what could not be deducted this year by the partnership. It passes through to you this year, and reduces your basis, but it is carried indefinitely forward to a future year by you, not the partnership, when Excess Taxable Income or Excess Business Interest FROM THE SAME Entity can be used to offset all or a portion of the amount that you are carrying forward. So don’t ignore the form or you’ll lose that amount, or have to file an amended return.
The amounts in Line 20 AE and AF are used in the calculations to see if you are further limited in the deductions of your own business interest expense this year. Those amounts do not carry forward, other than into your three year average. If you grossed less than $25 million it’s unlikely, but again, there are other criteria so check closely.
You should only get one of the three codes from an entity subject to the limitations in a given year. From entities not subject to the limitations, you may get these numbers that will be used in your own limitations calculations, so read the additional sheets of your K-1 carefully.
Caveats: I am not a CPA or tax professional, but a user of TurboTax since the early days. I have interests in partnerships that are generating these codes, and have had to read the tax code and everything I could find to understand it. If you work through the 8990 form carefully, it will become very clear what the form does, and what is happening. If you’re at all in doubt, get a CPA or Tax Pro to do your taxes.
The 8990 form is new this year, and is not supported by the 1040 desktop versions of TurboTax. It’s a simple form and calculation, so hopefully they’ll include it in the future, if you need it, get it from the forms page at irs.gov/forms you’ll have to fill out the form, and file your return by mail this year.
If I have anything wrong in my conclusions, please let me know. That’s what makes Answer X-change work.
