Rev. Proc. 2026-17 provides transition guidance for taxpayers who previously elected to be treated as an electing real property trade or business, electing farming business, or excepted regulated utility trade or business, but who now wish to withdraw that election in light of OBBBA amendments. By making these elections, these taxpayers chose to:
- Not have the business interest expense limitation apply; and
- Use ADS rather than MACRS for purposes of computing their depreciation deductions and therefore are prohibited from claiming bonus depreciation in the future.
Because OBBBA eased the business interest expense adjusted income limit and allows taxpayers to claim 100% bonus depreciation, many taxpayers who previously elected out of having the business interest expense limitation apply are no longer finding these elections advantageous.
Key provisions of Rev. Proc. 2016-17 allow taxpayers to:
- Withdraw a prior IRC §163(j)(7) election made for tax years beginning in 2022, 2023, or 2024 by filing an election withdrawal by the earlier of:
- October 15, 2026; or
- The statute of limitations period for issuing an assessment for the taxable yar for which the amended return is being filed;
- Make a late election under IRC §168(k)(7) to opt out of bonus depreciation for any class of property affected by the withdrawn election; and
- File an amended Form 1065, U.S. Return of Partnership Income, rather than an administrative adjustment request (AAR) to make the above elections.
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