Entity Setup
Entity Setup and the One Big Beautiful Bill: How Businesses Benefit from Section 163(j) Election Reversal in 2026
New relief under the OBBB Act allows certain businesses to retroactively withdraw prior Section 163(j) elections, potentially unlocking accelerated depreciation and reducing interest limitation burdens.
By NomadicTax Research Team • 5-8 min read • April 17, 2026
## What Changed: Section 163(j) and Real Property Businesses
The One Big Beautiful Bill (enacted in 2025) brought back **100% bonus depreciation** and modified the business interest limitation rules for certain trades or businesses—especially **real property**, **farming**, and **regulated utilities**. Some businesses had made an election under Section 163(j) in tax years **2022, 2023 or 2024** to limit interest deductions by excluding real property from the general rules. Under the new **Revenue Procedure 2026-17**, those elections can be *retroactively withdrawn*. ([rsmus.com](https://rsmus.com/insights/tax-alerts/2026/irs-offer-rare-tax-do-over-key-business-interest-limitation-elections.html?utm_source=openai))
## Why That Matters: Practical Impacts
- Without the election, you may now claim full bonus depreciation and calculate business interest limitation without excluding your real property business. That could reduce taxable income significantly.
- However, you're subject to the **statute of limitations** for amending each relevant return. In practice, you must file **amended returns** by the earlier of October 15, 2026, or (depending on your 2022 or 2023 election) the expiration of the statute of limitations; oftentimes that’s three years from original return date. ([rsmus.com](https://rsmus.com/insights/tax-alerts/2026/irs-offer-rare-tax-do-over-key-business-interest-limitation-elections.html?utm_source=openai))
## Step-by-Step Guide for Businesses
1. **Inventory your prior 163(j) elections**: Identify if you opted out for 2022-2024, and whether your trade qualifies (real property/farming/utilities).
2. **Calculate potential gains**: Estimate difference in deductions with and without the election—compare bonus depreciation vs interest limit costs.
3. **File amended returns** for each of those tax years; consult your tax advisor about timing and practice for restating basis and depreciation schedules.
4. **Retain documentation**, especially for elections, depreciation calculations, and any related basis and cost allocation.
5. **Watch out for state tax treatment**—state laws may differ on bonus depreciation or interest limits, so federal savings might not always translate to state benefits.
## Example
A farming business opted out of section 163(j) for tax year 2022. They didn’t claim bonus depreciation for new machinery bought that year and instead had interest expense limitation hit them, reducing deductions. Under the new procedure, they withdraw the election, amend the return by October 15, 2026, claim full depreciation, increasing deductions for that year—providing potential refund or reducing tax owed.
## What to Be Careful About
- Amended returns may trigger audits—ensure all changes are well documented.
- The statute of limitations might expire before October 15, depending on original filing date.
- State filing deadlines and rules may complicate claims across multiple jurisdictions.
## Bottom Line
If your business was impacted by the section 163(j) election and trade qualifies, reviewing your eligibility to withdraw that election under Rev. Proc. 2026-17 can provide valuable tax benefit. Proactive planning now could mean significant savings and improved cash flow in 2026.