What’s New under Revenue Procedure 2026-17
In March 2026, the IRS released Revenue Procedure 2026-17, which introduces changes to how businesses can make or revoke interest‐limitation elections under section 163(j)(7), following the passage of the One Big Beautiful Bill Act (OBBBA). This affects “electing real property trade or business,” “electing farming business,” and “excepted regulated utility trade or business” taxpayers.(eversheds-sutherland.com)
Key Details & Actionable Insights
- These elections allow businesses to largely ignore the interest limitation in exchange for using the Alternative Depreciation System (ADS), which forgoes bonus depreciation and requires slower depreciation on certain property.(eversheds-sutherland.com)
- Under the new procedure, the 60-month restriction on changing election status (making or revoking) is relaxed for designated U.S. persons whose election status has been impacted by OBBBA.(eversheds-sutherland.com)
Who Should Evaluate These Elections
- Commercial real estate owners who heavily finance their properties and would benefit from taking more depreciation by matching interests and depreciation schedules.
- Farming operations with high interest expense and slower asset turnover.
- Utilities or businesses with regulated utility components that may qualify under the “excepted regulated utility trade or business” category.
Example Scenarios
| Business Type | Without Election | With 163(j)(7) Election | Implication |
|---|---|---|---|
| Real Property-heavy developer | Interest deduction limited by general 30% of adjusted income; bonus depreciation available on new property | Interest limitation ignored; must use ADS, which slows depreciation; gives full interest deductions earlier | Elect if interest expense is high relative to depreciation; prefer election even with slower depreciation in early years |
| Farming business acquiring expensive equipment | Interest deduction limited otherwise; bonus depreciation allows expensing | ADS forces longer write-offs, reducing benefit of bonus depreciation | Only elect if interest expenses dominate capital expenditures |
Action Steps
- Calculate your projected interest expense vs depreciation under both ADS and bonus schedules for 2025-2027.
- Assess whether the loss of bonus depreciation in early years is offset by full interest deductions.
- If beneficial, make the 163(j)(7) election in your timely tax return; track the carryover and changes allowed under the relaxed revocation rule.
- Consult with your CPA for asset classification, timing of elections, and software settings.
Caveats & Where to Be Careful
- Making the election means foregoing bonus depreciation on eligible property — very costly when you purchase high-cost equipment.
- Must use the ADS for property where it applies, which slows deductions over longer recovery periods.
- Phase-outs and income thresholds may still affect net benefit.
By understanding how Revenue Procedure 2026-17 interfaces with OBBBA, business owners can make more informed decisions about structuring their financing, depreciation, and overall tax strategy.