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Investment interest is deductible only to the extent of a taxpayers net investment income. Any excess investment interest expense that is disallowed is carried forward indefinitely until net investment income is recognized.
Any business interest expense of the partnership that is disallowed upon application of the section 163(j) limitation is allocated to each partner in the same manner as the non-separately stated taxable income or loss of the partnership. This amount is called excess business interest expense.
You may elect to treat net long-term capital gains or qualified dividends as investment income in order to deduct more of your investment interest. But if you do, that portion of the long-term capital gain or dividend will be taxed at ordinary-income rates.
You can only take a deduction for investment interest expenses when the assets you buy produce taxable income, such as interest, dividends, capital gains or royalties. In other words, if you use that borrowed money to buy assets that generate tax-free income, you are not allowed to take a deduction.
If you have any carry forwards from last years Form 8990, those go on line 2, and the current year excess business interest goes on Line 3. Add those up on Line 5. Line 6 is your Adjusted Taxable Income (Line 11b on your 1040).
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Box 13 code K. Per the IRS Form 1065 instructions, box 13k is the amount from Form 8990, Part II, line 32 for excess business interest expense.
If your partnership reported excess business interest expense in Box 13, Code K of your 1065 Schedule K-1, you are required to file Form 8990. Per Partners Instructions for Schedule K-1 (Form 1065) Partners Share of Income, Deductions, Credits, etc.
Your investment interest expense deduction is limited to your net investment income. For more information, see Pub. 550, Investment Income and Expenses. If you are an individual, estate, or a trust, you must file Form 4952 to claim a deduction for your investment interest expense.
You can only take a deduction for investment interest expenses when the assets you buy produce taxable income, such as interest, dividends, capital gains or royalties. In other words, if you use that borrowed money to buy assets that generate tax-free income, you are not allowed to take a deduction.
Excess business interest income As noted above, section 163(j)(4)(B)(ii)(I) provides that excess BIE allocated to a partner from a partnership is treated as paid or accrued by the partner only to the extent the partner is allocated excess taxable income from such partnership.

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