IRC §163 · 26 U.S.C. §163
IRC §163: Interest Deduction and the Business Interest Limit
IRC §163 allows interest deductions — then §163(j) caps business interest at 30% of adjusted taxable income for larger businesses. Small businesses escape entirely; investors face a separate investment-interest limit.
What it governs
- Business interest generally deductible — the starting rule
- §163(j): 30% of adjusted taxable income cap for larger businesses
- Small-business exemption under the indexed gross-receipts threshold
- Investment interest deductible only to net investment income (Form 4952)
In the GuideFull treatment in Chapter 12 of the Guide (principal treatment) and Chapter 3 — THE TAX CUTTERY® Guide to Federal Income Taxation, Professional Edition (564 pages, 24 chapters).
Related sectionsIRC §168 — depreciating what the loan bought · IRC §199A — interest passed through to the QBI computation
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Questions this section answers
- Can my business deduct all its loan interest?
- If gross receipts sit under the indexed small-business threshold: yes, in full. Above it, §163(j) caps the deduction at 30% of adjusted taxable income, with the excess carried forward indefinitely.
- What is the investment interest limit?
- Margin and investment-loan interest deducts only to net investment income — interest, dividends, and elected capital gains. The excess carries forward. Personal interest (credit cards, auto) never deducts.
- Is mortgage interest a §163 deduction?
- Yes, within its own limits — acquisition debt on a first and second home, subject to the statutory cap. Home-equity interest deducts only when the proceeds buy, build, or improve the securing home.
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