26 U.S.C. § 163 | Interest

(a)

General rule

There shall be allowed as a deduction all interest paid or accrued within the taxable year on indebtedness.

(b)

Installment purchases where interest charge is not separately stated

(1)

General rule

If personal property or educational services are purchased under a contract—

(A)

which provides that payment of part or all of the purchase price is to be made in installments, and

(B)

in which carrying charges are separately stated but the interest charge cannot be ascertained,

then the payments made during the taxable year under the contract shall be treated for purposes of this section as if they included interest equal to 6 percent of the average unpaid balance under the contract during the taxable year. For purposes of the preceding sentence, the average unpaid balance is the sum of the unpaid balance outstanding on the first day of each month beginning during the taxable year, divided by 12. For purposes of this paragraph, the term “educational services” means any service (including lodging) which is purchased from an educational organization described in section 170(b)(1)(A)(ii) and which is provided for a student of such organization.

(2)

Limitation

In the case of any contract to which paragraph (1) applies, the amount treated as interest for any taxable year shall not exceed the aggregate carrying charges which are properly attributable to such taxable year.

(c)

Redeemable ground rents

For purposes of this subtitle, any annual or periodic rental under a redeemable ground rent (excluding amounts in redemption thereof) shall be treated as interest on an indebtedness secured by a mortgage.

(d)

Limitation on investment interest

(1)

In general

In the case of a taxpayer other than a corporation, the amount allowed as a deduction under this chapter for investment interest for any taxable year shall not exceed the net investment income of the taxpayer for the taxable year.

(2)

Carryforward of disallowed interest

The amount not allowed as a deduction for any taxable year by reason of paragraph (1) shall be treated as investment interest paid or accrued by the taxpayer in the succeeding taxable year.

(3)

Investment interest

For purposes of this subsection—

(A)

In general

The term “investment interest” means any interest allowable as a deduction under this chapter (determined without regard to paragraph (1)) which is paid or accrued on indebtedness properly allocable to property held for investment.

(B)

Exceptions

The term “investment interest” shall not include—

(i)

any qualified residence interest (as defined in subsection (h)(3)), or

(ii)

any interest which is taken into account under section 469 in computing income or loss from a passive activity of the taxpayer.

(C)

Personal property used in short sale

For purposes of this paragraph, the term “interest” includes any amount allowable as a deduction in connection with personal property used in a short sale.

(4)

Net investment income

For purposes of this subsection—

(A)

In general

The term “net investment income” means the excess of—

(i)

investment income, over

(ii)

investment expenses.

(B)

Investment income

The term “investment income” means the sum of—

(i)

gross income from property held for investment (other than any gain taken into account under clause (ii)(I)),

(ii)

the excess (if any) of—

(I)

the net gain attributable to the disposition of property held for investment, over

(II)

the net capital gain determined by only taking into account gains and losses from dispositions of property held for investment, plus

(iii)

so much of the net capital gain referred to in clause (ii)(II) (or, if lesser, the net gain referred to in clause (ii)(I)) as the taxpayer elects to take into account under this clause.

Such term shall include qualified dividend income (as defined in section 1(h)(11)(B)) only to the extent the taxpayer elects to treat such income as investment income for purposes of this subsection.

(C)

Investment expenses

The term “investment expenses” means the deductions allowed under this chapter (other than for interest) which are directly connected with the production of investment income.

(D)

Income and expenses from passive activities

Investment income and investment expenses shall not include any income or expenses taken into account under section 469 in computing income or loss from a passive activity.

(5)

Property held for investment

For purposes of this subsection—

(A)

In general

The term “property held for investment” shall include—

(i)

any property which produces income of a type described in section 469(e)(1), and

(ii)

any interest held by a taxpayer in an activity involving the conduct of a trade or business—

(I)

which is not a passive activity, and

(II)

with respect to which the taxpayer does not materially participate.

(B)

Investment expenses

In the case of property described in subparagraph (A)(i), expenses shall be allocated to such property in the same manner as under section 469.

(C)

Terms

For purposes of this paragraph, the terms “activity”, “passive activity”, and “materially participate” have the meanings given such terms by section 469.

(e)

Original issue discount

(1)

In general

The portion of the original issue discount with respect to any debt instrument which is allowable as a deduction to the issuer for any taxable year shall be equal to the aggregate daily portions of the original issue discount for days during such taxable year.

(2)

Definitions and special rules

For purposes of this subsection—

(A)

Debt instrument

The term “debt instrument” has the meaning given such term by section 1275(a)(1).

(B)

Daily portions

The daily portion of the original issue discount for any day shall be determined under section 1272(a) (without regard to paragraph (7) thereof and without regard to section 1273(a)(3)).

(C)

Short-term obligations

In the case of an obligor of a short-term obligation (as defined in section 1283(a)(1)(A)) who uses the cash receipts and disbursements method of accounting, the original issue discount (and any other interest payable) on such obligation shall be deductible only when paid.

(3)

Special rule for original issue discount on obligation held by related foreign person

(A)

In general

If any debt instrument having original issue discount is held by a related foreign person, any portion of such original issue discount shall not be allowable as a deduction to the issuer until paid. The preceding sentence shall not apply to the extent that the original issue discount is effectively connected with the conduct by such foreign related person of a trade or business within the United States unless such original issue discount is exempt from taxation (or is subject to a reduced rate of tax) pursuant to a treaty obligation of the United States.

(B)

Special rule for certain foreign entities

(i)

In general

In the case of any debt instrument having original issue discount which is held by a related foreign person which is a controlled foreign corporation (as defined in section 957) or a passive foreign investment company (as defined in section 1297), a deduction shall be allowable to the issuer with respect to such original issue discount for any taxable year before the taxable year in which paid only to the extent such original issue discount is includible (determined without regard to properly allocable deductions and qualified deficits under section 952(c)(1)(B)) during such prior taxable year in the gross income of a United States person who owns (within the meaning of section 958(a)) stock in such corporation.

(ii)

Secretarial authority

The Secretary may by regulation exempt transactions from the application of clause (i), including any transaction which is entered into by a payor in the ordinary course of a trade or business in which the payor is predominantly engaged.

(C)

Related foreign person

For purposes of subparagraph (A), the term “related foreign person” means any person—

(i)

who is not a United States person, and

(ii)

who is related (within the meaning of section 267(b)) to the issuer.

(4)

Exception

This subsection shall not apply to any debt instrument described in section 1272(a)(2)(D) (relating to loans between natural persons).

(5)

Special rules for original issue discount on certain high yield obligations

(A)

In general

In the case of an applicable high yield discount obligation issued by a corporation—

(i)

no deduction shall be allowed under this chapter for the disqualified portion of the original issue discount on such obligation, and

(ii)

the remainder of such original issue discount shall not be allowable as a deduction until paid.

For purposes of this paragraph, rules similar to the rules of subsection (i)(3)(B) shall apply in determining the amount of the original issue discount and when the original issue discount is paid.

(B)

Disqualified portion treated as stock distribution for purposes of dividend received deduction

(i)

In general

Solely for purposes of sections 243, 245, 246, and 246A, the dividend equivalent portion of any amount includible in gross income of a corporation under section 1272(a) in respect of an applicable high yield discount obligation shall be treated as a dividend received by such corporation from the corporation issuing such obligation.

(ii)

Dividend equivalent portion

For purposes of clause (i), the dividend equivalent portion of any amount includible in gross income under section 1272(a) in respect of an applicable high yield discount obligation is the portion of the amount so includible—

(I)

which is attributable to the disqualified portion of the original issue discount on such obligation, and

(II)

which would have been treated as a dividend if it had been a distribution made by the issuing corporation with respect to stock in such corporation.

(C)

Disqualified portion

(i)

In general

For purposes of this paragraph, the disqualified portion of the original issue discount on any applicable high yield discount obligation is the lesser of—

(I)

the amount of such original issue discount, or

(II)

the portion of the total return on such obligation which bears the same ratio to such total return as the disqualified yield on such obligation bears to the yield to maturity on such obligation.

(ii)

Definitions

For purposes of clause (i), the term “disqualified yield” means the excess of the yield to maturity on the obligation over the sum referred to in subsection (i)(1)(B) plus 1 percentage point, and the term “total return” is the amount which would have been the original issue discount on the obligation if interest described in the parenthetical in section 1273(a)(2) were included in the stated redemption price at maturity.

(D)

Exception for S corporations

This paragraph shall not apply to any obligation issued by any corporation for any period for which such corporation is an S corporation.

(E)

Effect on earnings and profits

This paragraph shall not apply for purposes of determining earnings and profits; except that, for purposes of determining the dividend equivalent portion of any amount includible in gross income under section 1272(a) in respect of an applicable high yield discount obligation, no reduction shall be made for any amount attributable to the disqualified portion of any original issue discount on such obligation.

(F)

Suspension of application of paragraph

(i)

Temporary suspension

September 1, 2008December 31, 2009This paragraph shall not apply to any applicable high yield discount obligation issued during the period beginning on , and ending on , in exchange (including an exchange resulting from a modification of the debt instrument) for an obligation which is not an applicable high yield discount obligation and the issuer (or obligor) of which is the same as the issuer (or obligor) of such applicable high yield discount obligation. The preceding sentence shall not apply to any obligation the interest on which is interest described in section 871(h)(4) (without regard to subparagraph (D) thereof) or to any obligation issued to a related person (within the meaning of section 108(e)(4)).

(ii)

Successive application

Any obligation to which clause (i) applies shall not be treated as an applicable high yield discount obligation for purposes of applying this subparagraph to any other obligation issued in exchange for such obligation.

(iii)

Secretarial authority to suspend application

The Secretary may apply this paragraph with respect to debt instruments issued in periods following the period described in clause (i) if the Secretary determines that such application is appropriate in light of distressed conditions in the debt capital markets.

(G)

Cross reference

For definition of applicable high yield discount obligation, see subsection (i).

(6)

Cross references

For provision relating to deduction of original issue discount on tax-exempt obligation, see section 1288.

For special rules in the case of the borrower under certain loans for personal use, see section 1275(b).

(f)

Denial of deduction for interest on certain obligations not in registered form

(1)

In general

Nothing in subsection (a) or in any other provision of law shall be construed to provide a deduction for interest on any registration-required obligation unless such obligation is in registered form.

(2)

Registration-required obligation

For purposes of this section—

(A)

In general

The term “registration-required obligation” means any obligation (including any obligation issued by a governmental entity) other than an obligation which—

(i)

is issued by a natural person,

(ii)

is not of a type offered to the public, or

(iii)

has a maturity (at issue) of not more than 1 year.

(B)

Authority to include other obligations

Clauses (ii) and (iii) of subparagraph (A) shall not apply to any obligation if—

(i)

such obligation is of a type which the Secretary has determined by regulations to be used frequently in avoiding Federal taxes, and

(ii)

such obligation is issued after the date on which the regulations referred to in clause (i) take effect.

(3)

Book entries permitted, etc.

For purposes of this subsection, rules similar to the rules of section 149(a)(3) shall apply, except that a dematerialized book entry system or other book entry system specified by the Secretary shall be treated as a book entry system described in such section.

(g)

Reduction of deduction where section 25 credit taken

The amount of the deduction under this section for interest paid or accrued during any taxable year on indebtedness with respect to which a mortgage credit certificate has been issued under section 25 shall be reduced by the amount of the credit allowable with respect to such interest under section 25 (determined without regard to section 26).

(h)

Disallowance of deduction for personal interest

(1)

In general

In the case of a taxpayer other than a corporation, no deduction shall be allowed under this chapter for personal interest paid or accrued during the taxable year.

(2)

Personal interest

For purposes of this subsection, the term “personal interest” means any interest allowable as a deduction under this chapter other than—

(A)

interest paid or accrued on indebtedness properly allocable to a trade or business (other than the trade or business of performing services as an employee),

(B)

any investment interest (within the meaning of subsection (d)),

(C)

any interest which is taken into account under section 469 in computing income or loss from a passive activity of the taxpayer,

(D)

any qualified residence interest (within the meaning of paragraph (3)),

(E)

any interest payable under section 6601 on any unpaid portion of the tax imposed by section 2001 for the period during which an extension of time for payment of such tax is in effect under section 6163, and

(F)

any interest allowable as a deduction under section 221 (relating to interest on educational loans).

(3)

Qualified residence interest

For purposes of this subsection—

(A)

In general

The term “qualified residence interest” means any interest which is paid or accrued during the taxable year on—

(i)

acquisition indebtedness with respect to any qualified residence of the taxpayer, or

(ii)

home equity indebtedness with respect to any qualified residence of the taxpayer.

For purposes of the preceding sentence, the determination of whether any property is a qualified residence of the taxpayer shall be made as of the time the interest is accrued.

(B)

Acquisition indebtedness

(i)

In general

The term “acquisition indebtedness” means any indebtedness which—

(I)

is incurred in acquiring, constructing, or substantially improving any qualified residence of the taxpayer, and

(II)

is secured by such residence.

Such term also includes any indebtedness secured by such residence resulting from the refinancing of indebtedness meeting the requirements of the preceding sentence (or this sentence); but only to the extent the amount of the indebtedness resulting from such refinancing does not exceed the amount of the refinanced indebtedness.

(ii)

$1,000,000 limitation

The aggregate amount treated as acquisition indebtedness for any period shall not exceed $1,000,000 ($500,000 in the case of a married individual filing a separate return).

(C)

Home equity indebtedness

(i)

In general

The term “home equity indebtedness” means any indebtedness (other than acquisition indebtedness) secured by a qualified residence to the extent the aggregate amount of such indebtedness does not exceed—

(I)

the fair market value of such qualified residence, reduced by

(II)

the amount of acquisition indebtedness with respect to such residence.

(ii)

Limitation

The aggregate amount treated as home equity indebtedness for any period shall not exceed $100,000 ($50,000 in the case of a separate return by a married individual).

(D)

October 13, 1987 Treatment of indebtedness incurred on or before

(i)

In general

October 13, 1987In the case of any pre-, indebtedness—

(I)

such indebtedness shall be treated as acquisition indebtedness, and

(II)

the limitation of subparagraph (B)(ii) shall not apply.

(ii)

Reduction in $1,000,000 limitation

October 13, 1987The limitation of subparagraph (B)(ii) shall be reduced (but not below zero) by the aggregate amount of outstanding pre-, indebtedness.

(iii)

October 13, 1987 Pre-, indebtedness

October 13, 1987The term “pre-, indebtedness” means—

(I)

October 13, 1987October 13, 1987 any indebtedness which was incurred on or before , and which was secured by a qualified residence on , and at all times thereafter before the interest is paid or accrued, or

(II)

October 13, 1987 any indebtedness which is secured by the qualified residence and was incurred after , to refinance indebtedness described in subclause (I) (or refinanced indebtedness meeting the requirements of this subclause) to the extent (immediately after the refinancing) the principal amount of the indebtedness resulting from the refinancing does not exceed the principal amount of the refinanced indebtedness (immediately before the refinancing).

(iv)

Limitation on period of refinancing

Subclause (II) of clause (iii) shall not apply to any indebtedness after—

(I)

the expiration of the term of the indebtedness described in clause (iii)(I), or

(II)

if the principal of the indebtedness described in clause (iii)(I) is not amortized over its term, the expiration of the term of the 1st refinancing of such indebtedness (or if earlier, the date which is 30 years after the date of such 1st refinancing).

(E)

Mortgage insurance premiums treated as interest

(i)

In general

Premiums paid or accrued for qualified mortgage insurance by a taxpayer during the taxable year in connection with acquisition indebtedness with respect to a qualified residence of the taxpayer shall be treated for purposes of this section as interest which is qualified residence interest.

(ii)

Phaseout

The amount otherwise treated as interest under clause (i) shall be reduced (but not below zero) by 10 percent of such amount for each $1,000 ($500 in the case of a married individual filing a separate return) (or fraction thereof) that the taxpayer’s adjusted gross income for the taxable year exceeds $100,000 ($50,000 in the case of a married individual filing a separate return).

(iii)

Limitation

January 1, 2007Clause (i) shall not apply with respect to any mortgage insurance contracts issued before .

(iv)

Termination

Clause (i) shall not apply to amounts—

(I)

December 31, 2021 paid or accrued after , or

(II)

properly allocable to any period after such date.

(F)

Special rules for taxable years beginning after 2017

(i)

In general

December 31, 2017In the case of taxable years beginning after —

(I)

Disallowance of home equity indebtedness interest

Subparagraph (A)(ii) shall not apply.

(II)

Limitation on acquisition indebtedness

Subparagraph (B)(ii) shall be applied by substituting “$750,000 ($375,000” for “$1,000,000 ($500,000”.

(III)

Mortgage insurance premiums treated as interest

Clause (iv) of subparagraph (E) shall not apply.

(IV)

December 15, 2017 Treatment of indebtedness incurred on or before

December 15, 2017December 15, 2017Subclause (II) shall not apply to any indebtedness incurred on or before , and, in applying such subclause to any indebtedness incurred after such date, the limitation under such subclause shall be reduced (but not below zero) by the amount of any indebtedness incurred on or before , which is treated as acquisition indebtedness for purposes of this subsection for the taxable year.

(V)

Binding contract exception

December 15, 2017January 1, 2018April 1, 2018April 1, 2018December 15, 2017In the case of a taxpayer who enters into a written binding contract before , to close on the purchase of a principal residence before , and who purchases such residence before , subclause (IV) shall be applied by substituting “” for “”.

(ii)

Treatment of refinancings of indebtedness

(I)

In general

In the case of any indebtedness which is incurred to refinance indebtedness, such refinanced indebtedness shall be treated for purposes of clause (i)(III) as incurred on the date that the original indebtedness was incurred to the extent the amount of the indebtedness resulting from such refinancing does not exceed the amount of the refinanced indebtedness.

(II)

Limitation on period of refinancing

Subclause (I) shall not apply to any indebtedness after the expiration of the term of the original indebtedness or, if the principal of such original indebtedness is not amortized over its term, the expiration of the term of the 1st refinancing of such indebtedness (or if earlier, the date which is 30 years after the date of such 1st refinancing).

(iii)

Coordination with exclusion of income from discharge of indebtedness

Section 108(h)(2) shall be applied without regard to this subparagraph.

(4)

Special rules for taxable years 2025 through 2028 relating to qualified passenger vehicle loan interest

(A)

In general

December 31, 2024January 1, 2029In the case of taxable years beginning after , and before , for purposes of this subsection the term “personal interest” shall not include qualified passenger vehicle loan interest.

(B)

Qualified passenger vehicle loan interest defined

(i)

In general

December 31, 2024For purposes of this paragraph, the term “qualified passenger vehicle loan interest” means any interest which is paid or accrued during the taxable year on indebtedness incurred by the taxpayer after , for the purchase of, and that is secured by a first lien on, an applicable passenger vehicle for personal use.

(ii)

Exceptions

Such term shall not include any amount paid or incurred on any of the following:

(I)

A loan to finance fleet sales.

(II)

A loan incurred for the purchase of a commercial vehicle that is not used for personal purposes.

(III)

Any lease financing.

(IV)

A loan to finance the purchase of a vehicle with a salvage title.

(V)

A loan to finance the purchase of a vehicle intended to be used for scrap or parts.

(iii)

VIN requirement

Interest shall not be treated as qualified passenger vehicle loan interest under this paragraph unless the taxpayer includes the vehicle identification number of the applicable passenger vehicle described in clause (i) on the return of tax for the taxable year.

(C)

Limitations

(i)

Dollar limit

The amount of interest taken into account by a taxpayer under subparagraph (B) for any taxable year shall not exceed $10,000.

(ii)

Limitation based on modified adjusted gross income

(I)

In general

The amount which is otherwise allowable as a deduction under subsection (a) as qualified passenger vehicle loan interest (determined without regard to this clause and after the application of clause (i)) shall be reduced (but not below zero) by $200 for each $1,000 (or portion thereof) by which the modified adjusted gross income of the taxpayer for the taxable year exceeds $100,000 ($200,000 in the case of a joint return).

(II)

Modified adjusted gross income

For purposes of this clause, the term “modified adjusted gross income” means the adjusted gross income of the taxpayer for the taxable year increased by any amount excluded from gross income under section 911, 931, or 933.

(D)

Applicable passenger vehicle

The term “applicable passenger vehicle” means any vehicle—

(i)

the original use of which commences with the taxpayer,

(ii)

which is manufactured primarily for use on public streets, roads, and highways (not including a vehicle operated exclusively on a rail or rails),

(iii)

which has at least 2 wheels,

(iv)

which is a car, minivan, van, sport utility vehicle, pickup truck, or motorcycle,

(v)

which is treated as a motor vehicle for purposes of title II of the Clean Air Act, and

(vi)

which has a gross vehicle weight rating of less than 14,000 pounds.

Such term shall not include any vehicle the final assembly of which did not occur within the United States.

(E)

Other definitions and special rules

For purposes of this paragraph—

(i)

Final assembly

For purposes of subparagraph (D), the term “final assembly” means the process by which a manufacturer produces a vehicle at, or through the use of, a plant, factory, or other place from which the vehicle is delivered to a dealer with all component parts necessary for the mechanical operation of the vehicle included with the vehicle, whether or not the component parts are permanently installed in or on the vehicle.

(ii)

Treatment of refinancing

Indebtedness described in subparagraph (B) shall include indebtedness that results from refinancing any indebtedness described in such subparagraph, and that is secured by a first lien on the applicable passenger vehicle with respect to which the refinanced indebtedness was incurred, but only to the extent the amount of such resulting indebtedness does not exceed the amount of such refinanced indebtedness.

(iii)

Related parties

Indebtedness described in subparagraph (B) shall not include any indebtedness owed to a person who is related (within the meaning of section 267(b) or 707(b)(1)) to the taxpayer.

(5)

Other definitions and special rules

For purposes of this subsection—

(A)

Qualified residence

(i)

In general

The term “qualified residence” means—

(I)

the principal residence (within the meaning of section 121) of the taxpayer, and

(II)

1 other residence of the taxpayer which is selected by the taxpayer for purposes of this subsection for the taxable year and which is used by the taxpayer as a residence (within the meaning of section 280A(d)(1)).

(ii)

Married individuals filing separate returns

If a married couple does not file a joint return for the taxable year—

(I)

such couple shall be treated as 1 taxpayer for purposes of clause (i), and

(II)

each individual shall be entitled to take into account 1 residence unless both individuals consent in writing to 1 individual taking into account the principal residence and 1 other residence.

(iii)

Residence not rented

For purposes of clause (i)(II), notwithstanding section 280A(d)(1), if the taxpayer does not rent a dwelling unit at any time during a taxable year, such unit may be treated as a residence for such taxable year.

(B)

Special rule for cooperative housing corporations

Any indebtedness secured by stock held by the taxpayer as a tenant-stockholder (as defined in section 216) in a cooperative housing corporation (as so defined) shall be treated as secured by the house or apartment which the taxpayer is entitled to occupy as such a tenant-stockholder. If stock described in the preceding sentence may not be used to secure indebtedness, indebtedness shall be treated as so secured if the taxpayer establishes to the satisfaction of the Secretary that such indebtedness was incurred to acquire such stock.

(C)

Unenforceable security interests

August 16, 1986Indebtedness shall not fail to be treated as secured by any property solely because, under any applicable State or local homestead or other debtor protection law in effect on , the security interest is ineffective or the enforceability of the security interest is restricted.

(D)

Special rules for estates and trusts

For purposes of determining whether any interest paid or accrued by an estate or trust is qualified residence interest, any residence held by such estate or trust shall be treated as a qualified residence of such estate or trust if such estate or trust establishes that such residence is a qualified residence of a beneficiary who has a present interest in such estate or trust or an interest in the residuary of such estate or trust.

(E)

Qualified mortgage insurance

The term “qualified mortgage insurance” means—

(i)

mortgage insurance provided by the Department of Veterans Affairs, the Federal Housing Administration, or the Rural Housing Service, and

(ii)

12 U.S.C. 4901 private mortgage insurance (as defined by section 2 of the Homeowners Protection Act of 1998 (), as in effect on the date of the enactment of this subparagraph).

(F)

Special rules for prepaid qualified mortgage insurance

Any amount paid by the taxpayer for qualified mortgage insurance that is properly allocable to any mortgage the payment of which extends to periods that are after the close of the taxable year in which such amount is paid shall be chargeable to capital account and shall be treated as paid in such periods to which so allocated. No deduction shall be allowed for the unamortized balance of such account if such mortgage is satisfied before the end of its term. The preceding sentences shall not apply to amounts paid for qualified mortgage insurance provided by the Department of Veterans Affairs or the Rural Housing Service.

(i)

Applicable high yield discount obligation

(1)

In general

For purposes of this section, the term “applicable high yield discount obligation” means any debt instrument if—

(A)

the maturity date of such instrument is more than 5 years from the date of issue,

(B)

the yield to maturity on such instrument equals or exceeds the sum of—

(i)

the applicable Federal rate in effect under section 1274(d) for the calendar month in which the obligation is issued, plus

(ii)

5 percentage points, and

(C)

such instrument has significant original issue discount.

For purposes of subparagraph (B)(i), the Secretary may by regulation (i) permit a rate to be used with respect to any debt instrument which is higher than the applicable Federal rate if the taxpayer establishes to the satisfaction of the Secretary that such higher rate is based on the same principles as the applicable Federal rate and is appropriate for the term of the instrument, or (ii) permit, on a temporary basis, a rate to be used with respect to any debt instrument which is higher than the applicable Federal rate if the Secretary determines that such rate is appropriate in light of distressed conditions in the debt capital markets.

(2)

Significant original issue discount

For purposes of paragraph (1)(C), a debt instrument shall be treated as having significant original issue discount if—

(A)

the aggregate amount which would be includible in gross income with respect to such instrument for periods before the close of any accrual period (as defined in section 1272(a)(5)) ending after the date 5 years after the date of issue, exceeds—

(B)

the sum of—

(i)

the aggregate amount of interest to be paid under the instrument before the close of such accrual period, and

(ii)

the product of the issue price of such instrument (as defined in sections 1273(b) and 1274(a)) and its yield to maturity.

(3)

Special rules

For purposes of determining whether a debt instrument is an applicable high yield discount obligation—

(A)

any payment under the instrument shall be assumed to be made on the last day permitted under the instrument, and

(B)

any payment to be made in the form of another obligation of the issuer (or a related person within the meaning of section 453(f)(1)) shall be assumed to be made when such obligation is required to be paid in cash or in property other than such obligation.

Except for purposes of paragraph (1)(B), any reference to an obligation in subparagraph (B) of this paragraph shall be treated as including a reference to stock.

(4)

Debt instrument

For purposes of this subsection, the term “debt instrument” means any instrument which is a debt instrument as defined in section 1275(a).

(5)

Regulations

The Secretary shall prescribe such regulations as may be appropriate to carry out the purposes of this subsection and subsection (e)(5), including—

(A)

regulations providing for modifications to the provisions of this subsection and subsection (e)(5) in the case of varying rates of interest, put or call options, indefinite maturities, contingent payments, assumptions of debt instruments, conversion rights, or other circumstances where such modifications are appropriate to carry out the purposes of this subsection and subsection (e)(5), and

(B)

regulations to prevent avoidance of the purposes of this subsection and subsection (e)(5) through the use of issuers other than C corporations, agreements to borrow amounts due under the debt instrument, or other arrangements.

(j)

Limitation on business interest

(1)

In general

The amount allowed as a deduction under this chapter for any taxable year for business interest shall not exceed the sum of—

(A)

the business interest income of such taxpayer for such taxable year,

(B)

30 percent of the adjusted taxable income of such taxpayer for such taxable year, plus

(C)

the floor plan financing interest of such taxpayer for such taxable year.

The amount determined under subparagraph (B) shall not be less than zero.

(2)

Carryforward of disallowed business interest

The amount of any business interest not allowed as a deduction for any taxable year by reason of paragraph (1) shall be treated as business interest paid or accrued in the succeeding taxable year.

(3)

Exemption for certain small businesses

In the case of any taxpayer (other than a tax shelter prohibited from using the cash receipts and disbursements method of accounting under section 448(a)(3)) which meets the gross receipts test of section 448(c) for any taxable year, paragraph (1) shall not apply to such taxpayer for such taxable year. In the case of any taxpayer which is not a corporation or a partnership, the gross receipts test of section 448(c) shall be applied in the same manner as if such taxpayer were a corporation or partnership.

(4)

Application to partnerships, etc.

(A)

In general

In the case of any partnership—

(i)

this subsection shall be applied at the partnership level and any deduction for business interest shall be taken into account in determining the non-separately stated taxable income or loss of the partnership, and

(ii)

the adjusted taxable income of each partner of such partnership—

(I)

shall be determined without regard to such partner’s distributive share of any items of income, gain, deduction, or loss of such partnership, and

(II)

shall be increased by such partner’s distributive share of such partnership’s excess taxable income.

For purposes of clause (ii)(II), a partner’s distributive share of partnership excess taxable income shall be determined in the same manner as the partner’s distributive share of nonseparately stated taxable income or loss of the partnership.

(B)

Special rules for carryforwards

(i)

In general

The amount of any business interest not allowed as a deduction to a partnership for any taxable year by reason of paragraph (1) for any taxable year—

(I)

shall not be treated under paragraph (2) as business interest paid or accrued by the partnership in the succeeding taxable year, and

(II)

shall, subject to clause (ii), be treated as excess business interest which is allocated to each partner in the same manner as the non-separately stated taxable income or loss of the partnership.

(ii)

Treatment of excess business interest allocated to partners

If a partner is allocated any excess business interest from a partnership under clause (i) for any taxable year—

(I)

such excess business interest shall be treated as business interest paid or accrued by the partner in the next succeeding taxable year in which the partner is allocated excess taxable income from such partnership, but only to the extent of such excess taxable income, and

(II)

any portion of such excess business interest remaining after the application of subclause (I) shall, subject to the limitations of subclause (I), be treated as business interest paid or accrued in succeeding taxable years.

For purposes of applying this paragraph, excess taxable income allocated to a partner from a partnership for any taxable year shall not be taken into account under paragraph (1)(A) with respect to any business interest other than excess business interest from the partnership until all such excess business interest for such taxable year and all preceding taxable years has been treated as paid or accrued under clause (ii).

(iii)

Basis adjustments

(I)

In general

The adjusted basis of a partner in a partnership interest shall be reduced (but not below zero) by the amount of excess business interest allocated to the partner under clause (i)(II).

(II)

Special rule for dispositions

If a partner disposes of a partnership interest, the adjusted basis of the partner in the partnership interest shall be increased immediately before the disposition by the amount of the excess (if any) of the amount of the basis reduction under subclause (I) over the portion of any excess business interest allocated to the partner under clause (i)(II) which has previously been treated under clause (ii) as business interest paid or accrued by the partner. The preceding sentence shall also apply to transfers of the partnership interest (including by reason of death) in a transaction in which gain is not recognized in whole or in part. No deduction shall be allowed to the transferor or transferee under this chapter for any excess business interest resulting in a basis increase under this subclause.

(C)

Excess taxable income

The term “excess taxable income” means, with respect to any partnership, the amount which bears the same ratio to the partnership’s adjusted taxable income as—

(i)

the excess (if any) of—

(I)

the amount determined for the partnership under paragraph (1)(B), over

(II)

the amount (if any) by which the business interest of the partnership, reduced by the floor plan financing interest, exceeds the business interest income of the partnership, bears to

(ii)

the amount determined for the partnership under paragraph (1)(B).

(D)

Application to S corporations

Rules similar to the rules of subparagraphs (A) and (C) shall apply with respect to any S corporation and its shareholders.

(5)

Business interest

For purposes of this subsection, the term “business interest” means any interest paid or accrued on indebtedness properly allocable to a trade or business. Such term shall not include investment interest (within the meaning of subsection (d)). Such term shall not include any interest which is capitalized under section 263(g) or 263A(f).

(6)

Business interest income

For purposes of this subsection, the term “business interest income” means the amount of interest includible in the gross income of the taxpayer for the taxable year which is properly allocable to a trade or business. Such term shall not include investment income (within the meaning of subsection (d)).

(7)

Trade or business

For purposes of this subsection—

(A)

In general

The term “trade or business” shall not include—

(i)

the trade or business of performing services as an employee,

(ii)

any electing real property trade or business,

(iii)

any electing farming business, or

(iv)

the trade or business of the furnishing or sale of—

(I)

electrical energy, water, or sewage disposal services,

(II)

gas or steam through a local distribution system, or

(III)

transportation of gas or steam by pipeline,

if the rates for such furnishing or sale, as the case may be, have been established or approved by a State or political subdivision thereof, by any agency or instrumentality of the United States, by a public service or public utility commission or other similar body of any State or political subdivision thereof, or by the governing or ratemaking body of an electric cooperative.

(B)

Electing real property trade or business

For purposes of this paragraph, the term “electing real property trade or business” means any trade or business which is described in section 469(c)(7)(C) and which makes an election under this subparagraph. Any such election shall be made at such time and in such manner as the Secretary shall prescribe, and, once made, shall be irrevocable.

(C)

Electing farming business

For purposes of this paragraph, the term “electing farming business” means—

(i)

a farming business (as defined in section 263A(e)(4)) which makes an election under this subparagraph, or

(ii)

1 See References in Text note below.

any trade or business of a specified agricultural or horticultural cooperative (as defined in section 199A(g)(2))  with respect to which the cooperative makes an election under this subparagraph.

Any such election shall be made at such time and in such manner as the Secretary shall prescribe, and, once made, shall be irrevocable.

(8)

Adjusted taxable income

For purposes of this subsection, the term “adjusted taxable income” means the taxable income of the taxpayer—

(A)

computed without regard to—

(i)

any item of income, gain, deduction, or loss which is not properly allocable to a trade or business,

(ii)

any business interest or business interest income,

(iii)

the amount of any net operating loss deduction under section 172,

(iv)

the amount of any deduction allowed under section 199A,

(v)

any deduction allowable for depreciation, amortization, or depletion, and

(vi)

the amounts included in gross income under sections 951(a), 951A(a), and 78 (and the portion of the deductions allowed under sections 245A(a) (by reason of section 964(e)(4)) and 250(a)(1)(B) by reason of such inclusions), and

(B)

computed with such other adjustments as provided by the Secretary.

(9)

Floor plan financing interest defined

For purposes of this subsection—

(A)

In general

The term “floor plan financing interest” means interest paid or accrued on floor plan financing indebtedness.

(B)

Floor plan financing indebtedness

The term “floor plan financing indebtedness” means indebtedness—

(i)

used to finance the acquisition of motor vehicles held for sale or lease, and

(ii)

secured by the inventory so acquired.

(C)

Motor vehicle

The term “motor vehicle” means a motor vehicle that is any of the following:

(i)

Any self-propelled vehicle designed for transporting persons or property on a public street, highway, or road.

(ii)

A boat.

(iii)

Farm machinery or equipment.

Such term shall also include any trailer or camper which is designed to provide temporary living quarters for recreational, camping, or seasonal use and is designed to be towed by, or affixed to, a motor vehicle.

(10)

Coordination with interest capitalization provisions

(A)

In general

In applying this subsection—

(i)

the limitation under paragraph (1) shall apply to business interest without regard to whether the taxpayer would otherwise deduct such business interest or capitalize such business interest under an interest capitalization provision, and

(ii)

any reference in this subsection to a deduction for business interest shall be treated as including a reference to the capitalization of business interest.

(B)

Amount allowed applied first to capitalized interest

The amount allowed after taking into account the limitation described in paragraph (1)—

(i)

shall be applied first to the aggregate amount of business interest which would otherwise be capitalized, and

(ii)

the remainder (if any) shall be applied to the aggregate amount of business interest which would be deducted.

(C)

Treatment of disallowed interest carried forward

No portion of any business interest carried forward under paragraph (2) from any taxable year to any succeeding taxable year shall, for purposes of this title (including any interest capitalization provision which previously applied to such portion) be treated as interest to which an interest capitalization provision applies.

(D)

Interest capitalization provision

For purposes of this section, the term “interest capitalization provision” means any provision of this subtitle under which interest—

(i)

is required to be charged to capital account, or

(ii)

may be deducted or charged to capital account.

(11)

Regulatory authority

The Secretary shall issue such regulations or guidance as may be necessary or appropriate to carry out the purposes of this subsection, including regulations or guidance to determine which business interest is taken into account under this subsection and section 59A(c)(3).

(12)

Special rule for taxable years beginning in 2019 and 2020

(A)

In general

(i)

In general

Except as provided in clause (ii) or (iii), in the case of any taxable year beginning in 2019 or 2020, paragraph (1)(B) shall be applied by substituting “50 percent” for “30 percent”.

(ii)

Special rule for partnerships

In the case of a partnership—

(I)

clause (i) shall not apply to any taxable year beginning in 2019, but

(II)

unless a partner elects not to have this subclause apply, in the case of any excess business interest of the partnership for any taxable year beginning in 2019 which is allocated to the partner under paragraph (4)(B)(i)(II)—

(aa)

50 percent of such excess business interest shall be treated as business interest which, notwithstanding paragraph (4)(B)(ii), is paid or accrued by the partner in the partner’s first taxable year beginning in 2020 and which is not subject to the limits of paragraph (1), and

(bb)

50 percent of such excess business interest shall be subject to the limitations of paragraph (4)(B)(ii) in the same manner as any other excess business interest so allocated.

(iii)

Election out

A taxpayer may elect, at such time and in such manner as the Secretary may prescribe, not to have clause (i) apply to any taxable year. Such an election, once made, may be revoked only with the consent of the Secretary. In the case of a partnership, any such election shall be made by the partnership and may be made only for taxable years beginning in 2020.

(B)

Election to use 2019 adjusted taxable income for taxable years beginning in 2020

(i)

In general

Subject to clause (ii), in the case of any taxable year beginning in 2020, the taxpayer may elect to apply this subsection by substituting the adjusted taxable income of the taxpayer for the last taxable year beginning in 2019 for the adjusted taxable income for such taxable year. In the case of a partnership, any such election shall be made by the partnership.

(ii)

Special rule for short taxable years

2 So in original. Probably should be followed by a period.

If an election is made under clause (i) for a taxable year which is a short taxable year, the adjusted taxable income for the taxpayer’s last taxable year beginning in 2019 which is substituted under clause (i) shall be equal to the amount which bears the same ratio to such adjusted taxable income determined without regard to this clause as the number of months in the short taxable year bears to 12 

(13)

Cross references

(A)

For requirement that an electing real property trade or business use the alternative depreciation system, see section 168(g)(1)(F).

(B)

For requirement that an electing farming business use the alternative depreciation system, see section 168(g)(1)(G).

(k)

Section 6166 interest

No deduction shall be allowed under this section for any interest payable under section 6601 on any unpaid portion of the tax imposed by section 2001 for the period during which an extension of time for payment of such tax is in effect under section 6166.

(l)

Disallowance of deduction on certain debt instruments of corporations

(1)

In general

No deduction shall be allowed under this chapter for any interest paid or accrued on a disqualified debt instrument.

(2)

Disqualified debt instrument

For purposes of this subsection, the term “disqualified debt instrument” means any indebtedness of a corporation which is payable in equity of the issuer or a related party or equity held by the issuer (or any related party) in any other person.

(3)

Special rules for amounts payable in equity

For purposes of paragraph (2), indebtedness shall be treated as payable in equity of the issuer or any other person only if—

(A)

a substantial amount of the principal or interest is required to be paid or converted, or at the option of the issuer or a related party is payable in, or convertible into, such equity,

(B)

a substantial amount of the principal or interest is required to be determined, or at the option of the issuer or a related party is determined, by reference to the value of such equity, or

(C)

the indebtedness is part of an arrangement which is reasonably expected to result in a transaction described in subparagraph (A) or (B).

For purposes of this paragraph, principal or interest shall be treated as required to be so paid, converted, or determined if it may be required at the option of the holder or a related party and there is a substantial certainty the option will be exercised.

(4)

Capitalization allowed with respect to equity of persons other than issuer and related parties

If the disqualified debt instrument of a corporation is payable in equity held by the issuer (or any related party) in any other person (other than a related party), the basis of such equity shall be increased by the amount not allowed as a deduction by reason of paragraph (1) with respect to the instrument.

(5)

Exception for certain instruments issued by dealers in securities

For purposes of this subsection, the term “disqualified debt instrument” does not include indebtedness issued by a dealer in securities (or a related party) which is payable in, or by reference to, equity (other than equity of the issuer or a related party) held by such dealer in its capacity as a dealer in securities. For purposes of this paragraph, the term “dealer in securities” has the meaning given such term by section 475.

(6)

Related party

For purposes of this subsection, a person is a related party with respect to another person if such person bears a relationship to such other person described in section 267(b) or 707(b).

(7)

Regulations

The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection, including regulations preventing avoidance of this subsection through the use of an issuer other than a corporation.

(m)

Interest on unpaid taxes attributable to nondisclosed reportable transactions

¹No deduction shall be allowed under this chapter for any interest paid or accrued under section 6601 on any underpayment of tax which is attributable to the portion of any reportable transaction understatement (as defined in section 6662A(b)) with respect to which the requirement of section 6664(d)(2)(A)  is not met.

(n)

Cross references

(1)

For disallowance of certain amounts paid in connection with insurance, endowment, or annuity contracts, see section 264.

(2)

For disallowance of deduction for interest relating to tax-exempt income, see section 265(a)(2).

(3)

For disallowance of deduction for carrying charges chargeable to capital account, see section 266.

(4)

For disallowance of interest with respect to transactions between related taxpayers, see section 267.

(5)

For treatment of redeemable ground rents and real property held subject to liabilities under redeemable ground rents, see section 1055.

Aug. 16, 1954, ch. 736 68A Stat. 46 Pub. L. 88–9, § 1(a)Apr. 10, 196377 Stat. 6 Pub. L. 88–272, title II, § 224(c)Feb. 26, 196478 Stat. 79 Pub. L. 91–172, title II, § 221(a)Dec. 30, 196983 Stat. 574 Pub. L. 92–178, title III, § 304(a)(2)Dec. 10, 197185 Stat. 523 Pub. L. 94–455, title IIOct. 4, 197690 Stat. 1535 Pub. L. 97–248, title II, § 231(b)Sept. 3, 198296 Stat. 498 Pub. L. 97–354, § 5(a)(18)Oct. 19, 198296 Stat. 1693 Pub. L. 98–369, div. A, title IJuly 18, 198498 Stat. 556 Pub. L. 99–514, title V, § 511(a)Oct. 22, 1986100 Stat. 2244 Pub. L. 100–203, title XDec. 22, 1987101 Stat. 1330–384 Pub. L. 100–647, title INov. 10, 1988102 Stat. 3390–3392 Pub. L. 101–239, title VIIDec. 19, 1989103 Stat. 2330 Pub. L. 101–508, title XI, § 11701(b)Nov. 5, 1990104 Stat. 1388–507 Pub. L. 103–66, title XIIIAug. 10, 1993107 Stat. 467 Pub. L. 104–188, title IAug. 20, 1996110 Stat. 1877 Pub. L. 105–34, title III, § 312(d)(1)Aug. 5, 1997111 Stat. 839 Pub. L. 105–277, div. J, title IV, § 4003(a)(1)Oct. 21, 1998112 Stat. 2681–908 Pub. L. 106–170, title V, § 544Dec. 17, 1999113 Stat. 1944 Pub. L. 108–27, title III, § 302(b)May 28, 2003117 Stat. 762 Pub. L. 108–357, title VIIIOct. 22, 2004118 Stat. 1596 Pub. L. 109–135, title IV, § 403(a)(15)Dec. 21, 2005119 Stat. 2619 Pub. L. 109–222, title V, § 501(a)May 17, 2006120 Stat. 354 Pub. L. 109–432, div. A, title IV, § 419(a)Dec. 20, 2006120 Stat. 2967 Pub. L. 110–142, § 3(a)Dec. 20, 2007121 Stat. 1804 Pub. L. 111–5, div. B, title I, § 1232(a)Feb. 17, 2009123 Stat. 341 Pub. L. 111–147, title V, § 502(a)(1)Mar. 18, 2010124 Stat. 107 Pub. L. 111–312, title VII, § 759(a)Dec. 17, 2010124 Stat. 3323 Pub. L. 112–240, title II, § 204(a)Jan. 2, 2013126 Stat. 2323 Pub. L. 113–295, div. A, title I, § 104(a)Dec. 19, 2014128 Stat. 4013 Pub. L. 114–113, div. Q, title I, § 152(a)Dec. 18, 2015129 Stat. 3066 Pub. L. 115–97, title IDec. 22, 2017131 Stat. 2086 Pub. L. 115–123, div. D, title I, § 40202(a)Feb. 9, 2018132 Stat. 145 Pub. L. 115–141, div. U, title IV, § 401(a)(48)Mar. 23, 2018132 Stat. 1186 Pub. L. 116–94, div. Q, title I, § 102(a)Dec. 20, 2019133 Stat. 3228 Pub. L. 116–136, div. A, title II, § 2306(a)Mar. 27, 2020134 Stat. 358 Pub. L. 116–260, div. EE, title I, § 133(a)Dec. 27, 2020134 Stat. 3053 Pub. L. 119–21, title VIIJuly 4, 2025139 Stat. 163(, ; , (c), , , 7; , , ; , , ; , (b)(2), (d), , , 524; , §§ 205(c)(3), 209(a), title XIX, §§ 1901(b)(3)(K), (8)(C), 1906(b)(13)(A), , , 1542, 1793, 1794, 1834; , title III, § 310(b)(2), , , 596; , , ; , §§ 42(a)(3), 56(b), 127(f), 128(c), title VI, § 612(c), , , 574, 652, 654, 911; , (b), title IX, § 902(e)(1), title XIII, § 1301(j)(3), title XVIII, §§ 1803(a)(4), 1810(e)(1), , , 2246, 2382, 2657, 2793, 2825; , §§ 10102(a), (b), 10212(b), , , 1330–386, 1330–406; , §§ 1005(c)(1)–(9), (12), 1006(u)(1), 1009(b)(6), title II, § 2004(b)(1), , , 3427, 3449, 3598; , §§ 7202(a), (b), 7210(a), , , 2331, 2339; , (c), , ; , §§ 13206(d)(1), 13228(a)–(c), , , 494, 495; , §§ 1703(n)(4), 1704(f)(2)(A), (B), , , 1879; , title V, § 503(b)(2), title X, § 1005(a), title XVI, § 1604(g)(1), , , 853, 911, 1099; , , ; , , ; , , ; , §§ 838(a), 841(a), 845(a)–(d), , , 1597, 1600, 1601; , , ; , (b), , ; , (b), , ; , , ; , (b), , ; , (2)(B), (C), (c), , , 108; , , ; , (b), , ; , title II, §§ 220(h), 221(a)(25)(A), , , 4036, 4040; , , ; , §§ 11043(a), 13301(a), , , 2117; , , ; , (b)(12), (c)(1)(C), (3)(B), , , 1202, 1205, 1206; , , ; , , ; , , ; , §§ 70108(a), 70203(a), 70303(a), (b), 70341(a)–(c), 70342(a), , , 176, 195, 207, 208.)

Editorial Notes

References in Text

act July 14, 1955, ch. 360 69 Stat. 322 section 7401 of Title 42The Clean Air Act, referred to in subsec. (h)(4)(D)(v), is , , which is classified generally to chapter 85 (§ 7401 et seq.) of Title 42, The Public Health and Welfare. Title II of the Act, known as the National Emission Standards Act, is classified generally to subchapter II (§ 7521 et seq.) of chapter 85 of Title 42. For complete classification of this Act to the Code, see Short Title note set out under and Tables.

Pub. L. 109–432Dec. 20, 2006The date of the enactment of this subparagraph, referred to in subsec. (h)(5)(E)(ii), is the date of enactment of , which was approved .

Pub. L. 115–141, div. T, § 101(a)(1)Mar. 23, 2018132 Stat. 1151Section 199A(g)(2), referred to in subsec. (j)(7)(C)(ii), probably should be a reference to section 199A(g)(4), which defines “specified agricultural or horticultural cooperative” after the general amendment of section 199A(g) by , , .

Pub. L. 111–152, title I, § 1409(c)(2)(A)Mar. 30, 2010124 Stat. 1069Section 6664(d)(2)(A), referred to in subsec. (m), was redesignated as section 6664(d)(3)(A) by , , .

Amendments

Pub. L. 119–21, § 70108(a)(3)2025—Subsec. (h)(3)(F). , substituted “beginning after 2017” for “2018 through 2025” in heading.

Pub. L. 119–21, § 70108(a)(1)(A)January 1, 2026December 31, 2017Subsec. (h)(3)(F)(i). , struck out “, and before ” after “” in introductory provisions.

Pub. L. 119–21, § 70108(a)(1)(B)Subsec. (h)(3)(F)(i)(III) to (V). –(D), added subcl. (III), redesignated former subcls. (III) and (IV) as (IV) and (V), respectively, and substituted “subclause (IV)” for “subclause (III)” in subcl. (V).

Pub. L. 119–21, § 70108(a)(2)December 31, 2025Subsec. (h)(3)(F)(ii) to (iv). , redesignated cls. (iii) and (iv) as (ii) and (iii), respectively, and struck out former cl. (ii). Prior to amendment, text of cl. (ii) read as follows: “In the case of taxable years beginning after , the limitation under subparagraph (B)(ii) shall be applied to the aggregate amount of indebtedness of the taxpayer described in subparagraph (B)(i) without regard to the taxable year in which the indebtedness was incurred.”

Pub. L. 119–21, § 70203(a)Subsec. (h)(4), (5). , added par. (4) and redesignated former par. (4) as (5).

Pub. L. 119–21, § 70341(b)Subsec. (j)(5). , inserted at end “Such term shall not include any interest which is capitalized under section 263(g) or 263A(f).”

Pub. L. 119–21, § 70303(a)January 1, 2022Subsec. (j)(8)(A)(v). , struck out “in the case of taxable years beginning before ,” before “any deduction”.

Pub. L. 119–21, § 70342(a)Subsec. (j)(8)(A)(vi). , added cl. (vi).

Pub. L. 119–21, § 70303(b)Subsec. (j)(9)(C). , inserted concluding provisions.

Pub. L. 119–21, § 70341(a)Subsec. (j)(10) to (13). , (c), added pars. (10) and (11) and successively redesignated former pars. (10) and (11) as (12) and (13), respectively.

Pub. L. 116–260December 31, 2021December 31, 20202020—Subsec. (h)(3)(E)(iv)(I). substituted “” for “”.

Pub. L. 116–136Subsec. (j)(10), (11). added par. (10) and redesignated former par. (10) as (11).

Pub. L. 116–94December 31, 2020December 31, 20172019—Subsec. (h)(3)(E)(iv)(I). substituted “” for “”.

Pub. L. 115–141, § 401(b)(12)2018—Subsec. (d)(4)(E). , struck out subpar. (E). Text read as follows: “Investment income of the taxpayer for any taxable year shall be reduced by the amount of the passive activity loss to which section 469(a) does not apply for such taxable year by reason of section 469(m). The preceding sentence shall not apply to any portion of such passive activity loss which is attributable to a rental real estate activity with respect to which the taxpayer actively participates (within the meaning of section 469(i)(6)) during such taxable year.”

Pub. L. 115–141, § 401(c)(1)(C)July 1, 1982Subsec. (e)(1). , substituted “The portion of the original issue discount with respect to any debt instrument which is” for “In the case of any debt instrument issued after , the portion of the original issue discount with respect to such debt instrument which is”.

Pub. L. 115–141, § 401(c)(3)(B)Subsec. (e)(4). , amended par. (4) generally. Prior to amendment, text read as follows: “This subsection shall not apply to any debt instrument described in—

March 2, 1984“(A) subparagraph (D) of section 1272(a)(2) (relating to obligations issued by natural persons before ), and

“(B) subparagraph (E) of section 1272(a)(2) (relating to loans between natural persons).”

Pub. L. 115–141, § 401(a)(48)Subsec. (e)(5)(C)(ii). , inserted “in” before “subsection (i)(1)(B)”.

Pub. L. 115–123December 31, 2017December 31, 2016Subsec. (h)(3)(E)(iv)(I). substituted “” for “”.

Pub. L. 115–97, § 11043(a)2017—Subsec. (h)(3)(F). , added subpar. (F).

Pub. L. 115–97, § 13301(a)Subsec. (j). , amended subsec. (j) generally. Prior to amendment, subsec. (j) related to a limitation on deduction for interest on certain indebtedness of a corporation.

Pub. L. 114–113December 31, 2016December 31, 20142015—Subsec. (h)(3)(E)(iv)(I). substituted “” for “”.

Pub. L. 113–295, § 221(a)(25)(A)(i)2014—Subsec. (d)(6). , struck out par. (6) which related to phase-in of disallowance.

Pub. L. 113–295, § 104(a)December 31, 2014December 31, 2013Subsec. (h)(3)(E)(iv)(I). , substituted “” for “”.

Pub. L. 113–295, § 220(h)Subsec. (h)(4)(F). , substituted “Department of Veterans Affairs or the Rural Housing Service” for “Veterans Administration or the Rural Housing Administration”.

Pub. L. 113–295, § 221(a)(25)(A)(ii)Subsec. (h)(5). , struck out par. (5). Text read as follows: “In the case of any taxable year beginning in calendar years 1987 through 1990, the amount of interest with respect to which a deduction is disallowed under this subsection shall be equal to the applicable percentage (within the meaning of subsection (d)(6)(B)) of the amount which (but for this paragraph) would have been so disallowed.”

Pub. L. 112–240, § 204(a)December 31, 2013December 31, 20112013—Subsec. (h)(3)(E)(iv)(I). , substituted “” for “”.

Pub. L. 112–240, § 204(b)Subsec. (h)(4)(E)(i). , substituted “Department of Veterans Affairs” for “Veterans Administration” and “Rural Housing Service” for “Rural Housing Administration”.

Pub. L. 111–147, § 502(a)(2)(B)2010—Subsec. (f)(2)(A)(ii) to (iv). , inserted “or” at end of cl. (ii), substituted period for “, or” in cl. (iii), and struck out cl. (iv), which read as follows: “is described in subparagraph (B).”

Pub. L. 111–147, § 502(a)(1)Subsec. (f)(2)(B). , (2)(C)(i), redesignated subpar. (C) as (B), struck out “, and subparagraph (B),” after “subparagraph (A)” in introductory provisions, and struck out former subpar. (B) which related to certain obligations not included as registration-required obligations.

Pub. L. 111–147, § 502(a)(2)(C)(ii)Subsec. (f)(2)(B)(i). , amended cl. (i) generally. Prior to amendment, cl. (i) read as follows: “in the case of—

“(I) subparagraph (A), such obligation is of a type which the Secretary has determined by regulations to be used frequently in avoiding Federal taxes, or

“(II) subparagraph (B), such obligation is of a type specified by the Secretary in regulations, and”.

Pub. L. 111–147, § 502(a)(1)Subsec. (f)(2)(C). , redesignated subpar. (C) as (B).

Pub. L. 111–147, § 502(c)Subsec. (f)(3). , inserted before period at end “, except that a dematerialized book entry system or other book entry system specified by the Secretary shall be treated as a book entry system described in such section”.

Pub. L. 111–312December 31, 2011December 31, 2010Subsec. (h)(3)(E)(iv)(I). substituted “” for “”.

Pub. L. 111–5, § 1232(a)2009—Subsec. (e)(5)(F), (G). , added subpar. (F) and redesignated former subpar. (F) as (G).

Pub. L. 111–5, § 1232(b)Subsec. (i)(1). , in concluding provisions, inserted “(i)” before “permit a rate” and “, or (ii) permit, on a temporary basis, a rate to be used with respect to any debt instrument which is higher than the applicable Federal rate if the Secretary determines that such rate is appropriate in light of distressed conditions in the debt capital markets” before period at end.

Pub. L. 110–142December 31, 2010December 31, 20072007—Subsec. (h)(3)(E)(iv)(I). substituted “” for “”.

Pub. L. 109–432, § 419(a)2006—Subsec. (h)(3)(E). , added subpar. (E).

Pub. L. 109–432, § 419(b)Subsec. (h)(4)(E), (F). , added subpars. (E) and (F).

Pub. L. 109–222, § 501(a)Subsec. (j)(8). , added par. (8). Former par. (8) redesignated (9).

Pub. L. 109–222Subsec. (j)(9). redesignated par. (8) as (9) and added subpar. (D).

Pub. L. 109–1352005—Subsec. (j)(6)(A)(i)(III), (IV). added subcl. (III) and redesignated former subcl. (III) as (IV).

Pub. L. 108–357, § 841(a)2004—Subsec. (e)(3)(B), (C). , added subpar. (B) and redesignated former subpar. (B) as (C).

lPub. L. 108–357, § 845(a)Subsec. ()(2). , inserted “or equity held by the issuer (or any related party) in any other person” after “or a related party”.

lPub. L. 108–357, § 845(d)Subsec. ()(3). , substituted “or any other person” for “or a related party” in introductory provisions.

lPub. L. 108–357, § 845(b)Subsec. ()(4) to (7). , (c), added pars. (4) and (5) and redesignated former pars. (4) and (5) as (6) and (7), respectively.

Pub. L. 108–357, § 838(a)Subsecs. (m), (n). , added subsec. (m) and redesignated former subsec. (m) as (n).

Pub. L. 108–272003—Subsec. (d)(4)(B). inserted at end “Such term shall include qualified dividend income (as defined in section 1(h)(11)(B)) only to the extent the taxpayer elects to treat such income as investment income for purposes of this subsection.”

Pub. L. 106–1701999—Subsec. (j)(3)(C). added subpar. (C).

Pub. L. 105–2771998—Subsec. (h)(2)(F). added subpar. (F).

Pub. L. 105–34, § 503(b)(2)(B)1997—Subsec. (h)(2)(E). , struck out “or 6166 or under section 6166A (as in effect before its repeal by the Economic Recovery Tax Act of 1981)” after “section 6163”.

Pub. L. 105–34, § 312(d)(1)Subsec. (h)(4)(A)(i)(I). , substituted “section 121” for “section 1034”.

Pub. L. 105–34, § 1604(g)(1)Subsec. (j)(2)(B)(iii). , substituted “clause (ii)” for “clause (i)” in introductory provisions.

Pub. L. 105–34, § 503(b)(2)(A)lSubsec. (k). , added subsec. (k). Former subsec. (k) redesignated ().

lPub. L. 105–34, § 1005(a)llSubsec. (). , added subsec. (). Former subsec. () redesignated (m).

Pub. L. 105–34, § 503(b)(2)(A)l, redesignated subsec. (k) as ().

Pub. L. 105–34, § 1005(a)lSubsec. (m). , redesignated subsec. () as (m).

Pub. L. 104–188, § 1704(f)(2)(A)1996—Subsec. (j)(1)(B). , inserted before period at end “(and clause (ii) of paragraph (2)(A) shall not apply for purposes of applying this subsection to the amount so treated)”.

Pub. L. 104–188, § 1703(n)(4)Subsec. (j)(6)(E)(ii). , which directed that cl. (ii) be amended by substituting “which is” for “which is a”, could not be executed, because “which is a” does not appear.

Pub. L. 104–188, § 1704(f)(2)(B)Subsec. (j)(7), (8). , added par. (7) and redesignated former par. (7) as (8).

Pub. L. 103–66, § 13206(d)(1)1993—Subsec. (d)(4)(B). , amended heading and text of subpar. (B) generally. Prior to amendment, text read as follows: “The term ‘investment income’ means the sum of—

“(i) gross income (other than gain taken into account under clause (ii)) from property held for investment, and

“(ii) any net gain attributable to the disposition of property held for investment.”

Pub. L. 103–66, § 13228(c)(2)Subsec. (j). , substituted “for interest on certain indebtedness” for “for certain interest paid by corporation to related person” in heading.

Pub. L. 103–66, § 13228(a)Subsec. (j)(3). , amended heading and text of par. (3) generally. Prior to amendment, text read as follows: “For purposes of this subsection—

In general“(A) .—Except as provided in subparagraph (B), the term ‘disqualified interest’ means any interest paid or accrued by the taxpayer (directly or indirectly) to a related person if no tax is imposed by this subtitle with respect to such interest.

Exception for certain existing indebtedness“(B) .—The term ‘disqualified interest’ does not include any interest paid or accrued under indebtedness with a fixed term—

July 10, 1989“(i) which was issued on or before , or

“(ii) which was issued after such date pursuant to a written binding contract in effect on such date and all times thereafter before such indebtedness was issued.”

Pub. L. 103–66, § 13228(c)(1)Subsec. (j)(5)(B). , struck out “to a related person” after “by the taxpayer” in introductory provisions.

Pub. L. 103–66, § 13228(b)Subsec. (j)(6)(D), (E). , added subpars. (D) and (E).

Pub. L. 101–508, § 11701(b)(1)1990—Subsec. (e)(5)(A). , amended last sentence generally. Prior to amendment, last sentence read as follows: “For purposes of clause (ii), rules similar to the rules of subsection (i)(3)(B) shall apply in determining the time when the original issue discount is paid.”

Pub. L. 101–508, § 11701(b)(2)(B)Subsec. (i)(3). , inserted sentence at end.

Pub. L. 101–508, § 11701(b)(2)(A)Subsec. (i)(3)(B). , struck out “(or stock)” after “obligation” wherever appearing.

Pub. L. 101–508, § 11701(c)(2)Subsec. (j)(2)(A)(ii). , substituted “or on any other day” for “and on such other days”.

Pub. L. 101–508, § 11701(c)(1)Subsec. (j)(2)(C). , substituted “reduced (but not below zero) by such” for “less such” in introductory provisions.

Pub. L. 101–239, § 7202(a)1989—Subsec. (e)(5), (6). , added par. (5) and redesignated former par. (5) as (6).

Pub. L. 101–239, § 7202(b)Subsec. (i). , added subsec. (i). Former subsec. (i) redesignated (j).

Pub. L. 101–239, § 7210(a)Subsec. (j). , added subsec. (j). Former subsec. (j) redesignated (k).

Pub. L. 101–239, § 7202(b), redesignated subsec. (i) as (j).

Pub. L. 101–239, § 7210(a)Subsec. (k). , redesignated subsec. (j) as (k).

Pub. L. 100–647, § 1005(c)(1)1988—Subsec. (d)(3)(A). , substituted “properly allocable to” for “incurred or continued to purchase or carry”.

Pub. L. 100–647, § 1005(c)(2)Subsec. (d)(4)(B). , amended subpar. (B) generally. Prior to amendment, subpar. (B) read as follows: “The term ‘investment income’ means the sum of—

“(i) gross income (other than gain described in clause (ii)) from property held for investment, and

“(ii) any net gain attributable to the disposition of property held for investment,

but only to the extent such amounts are not derived from the conduct of a trade or business.”

Pub. L. 100–647, § 1005(c)(3)Subsec. (d)(6)(A). , amended subpar. (A) generally. Prior to amendment, subpar. (A) read as follows: “The amount of interest disallowed under this subsection for any such taxable year shall be equal to the sum of—

“(i) the applicable percentage of the amount which (without regard to this paragraph) is not allowed as a deduction under this subsection for the taxable year to the extent such amount does not exceed the ceiling amount,

“(ii) the amount which (without regard to this paragraph) is not allowed as a deduction under this subsection in excess of the ceiling amount, plus

“(iii) the amount of any carryforward to such taxable year under paragraph (2) with respect to which a deduction was disallowed under this subsection for a preceding taxable year.

For purposes of this subparagraph, the amount under clause (i) or (ii) shall be computed without regard to the amount described in clause (iii).”

Pub. L. 100–647, § 1006(u)(1)Subsec. (e)(2)(B). , substituted “paragraph (7)” for “paragraph (6)”.

Pub. L. 100–647, § 1005(c)(4)Subsec. (h)(2)(A). , substituted “properly allocable to” for “incurred or continued in connection with the conduct of”.

Pub. L. 100–647, § 1005(c)(12)Subsec. (h)(2)(E). , inserted “or under section 6166A (as in effect before its repeal by the Economic Recovery Tax Act of 1981)” before period at end.

Pub. L. 100–647, § 1005(c)(5)Pub. L. 100–203August 16, 1986August 16, 1986August 16, 1986Subsec. (h)(3)(C). , effective as if enacted immediately before enactment of (see 1987 Amendment note below), amended subpar. (C) generally. Prior to amendment, subpar. (C) read as follows: “The amount under subparagraph (B)(ii)(I) at any time after , shall not be less than the outstanding aggregate principal amount (as of such time) of indebtedness which was incurred on or before , and which was secured by the qualified residence on .”

Pub. L. 100–647, § 1005(c)(6)(A)Pub. L. 100–203Subsec. (h)(4). , effective as if enacted immediately before enactment of (redesignating par. (5) as (4), see 1987 Amendment note below), amended heading by substituting “Other definitions and special rules—For purposes of this subsection—” for “Other definitions and special rules”.

Pub. L. 100–647, § 1005(c)(6)(B)(i)Pub. L. 100–203Subsec. (h)(4)(A). , (7), effective as if enacted immediately before enactment of (redesignating par. (5) as (4), see 1987 Amendment note below), amended subpar. (A) by striking out “For purposes of this subsection—” after “Qualified residence” in introductory provisions, “used or” after “Residence not” in cl. (iii) heading, and “or use” after “does not rent” in cl. (iii) text.

Pub. L. 100–647, § 1005(c)(6)(B)(ii)Pub. L. 100–203Subsec. (h)(4)(B). , effective as if enacted immediately before enactment of (redesignating par. (5) as (4), see 1987 Amendment note below), amended subpar. (B) by substituting “Any” for “For purposes of this paragraph, any”.

Pub. L. 100–647, § 1005(c)(8)Pub. L. 100–203Subsec. (h)(4)(C), (D). , effective as if enacted immediately before enactment of (redesignating par. (5) as (4), see 1987 Amendment note below), par. (4) added subpars. (C) and (D).

Pub. L. 100–647, § 2004(b)(1)Subsec. (h)(5). , redesignated par. (6) as (5).

Pub. L. 100–647, § 2004(b)(1)Subsec. (h)(6). , redesignated par. (6) as (5).

Pub. L. 100–647, § 1005(c)(9), substituted “but for this paragraph” for “but for this subsection”.

Pub. L. 100–647, § 1009(b)(6)Pub. L. 99–514, § 902(e)(1)Subsec. (i)(2). , made technical correction to directory language of , see 1986 Amendment note below.

Pub. L. 100–203, § 10212(b)l1987—Subsec. (d)(4)(E). , substituted “section 469(m)” for “section 469()”.

Pub. L. 100–203, § 10102(a)Subsec. (h)(3). , amended par. (3) generally. Prior to amendment (see 1988 Amendment note above), par. (3) read as follows: “For purposes of this subsection—

In general“(A) .—The term ‘qualified residence interest’ means interest which is paid or accrued during the taxable year on indebtedness which is secured by any property which (at the time such interest is paid or accrued) is a qualified residence of the taxpayer.

Limitation on amount of interest“(B) .—The term ‘qualified residence interest’ shall not include any interest paid or accrued on indebtedness secured by any qualified residence which is allocable to that portion of the principal amount of such indebtedness which, when added to the outstanding aggregate principal amount of all other indebtedness previously incurred and secured by such qualified residence, exceeds the lesser of—

“(i) the fair market value of such qualified residence, or

“(ii) the sum of—

“(I) the taxpayer’s basis in such qualified residence (adjusted only by the cost of any improvements to such residence), plus

“(II) the aggregate amount of qualified indebtedness of the taxpayer with respect to such qualified residence.

august 16, 1986Cost not less than balance of indebtedness incurred on or before .—“(C)

In generalAugust 16, 1986“(i) .—The amount under subparagraph (B)(ii)(I) at any time after , shall not be less than the outstanding principal amount (as of such time) of indebtedness—

August 16, 1986August 16, 1986“(I) which was incurred on or before , and which was secured by the qualified residence on , or

August 16, 1986“(II) which is secured by the qualified residence and was incurred after , to refinance indebtedness described in subclause (I) (or refinanced indebtedness meeting the requirements of this subclause) to the extent (immediately after the refinancing) the principal amount of the indebtedness resulting from the refinancing does not exceed the principal amount of the refinanced indebtedness (immediately before the refinancing).

Limitation on period of refinancing“(ii) .—Subclause (II) of clause (i) shall not apply to any indebtedness after—

“(I) the expiration of the term of the indebtedness described in clause (i)(I), or

“(II) if the principal of the indebtedness described in clause (i)(I) is not amortized over its term, the expiration of the term of the 1st refinancing of such indebtedness (or if earlier, the date which is 30 years after the date of such refinancing).

Time for determination“(D) .—Except as provided in regulations, any determination under subparagraph (B) shall be made as of the time the indebtedness is incurred.”

Pub. L. 100–203, § 10102(b)Subsec. (h)(4), (5). , redesignated par. (5) as (4) and struck out former par. (4) which defined “qualified indebtedness” for purposes of this subsection.

Pub. L. 99–514, § 511(a)1986—Subsec. (d). , substituted “Limitation on investment interest” for “Limitation on interest on investment indebtedness” in heading, and amended text generally, revising and restating as pars. (1) to (6) provisions of former pars. (1) to (7).

Pub. L. 99–514, § 1803(a)(4)Subsec. (e)(2)(C). , added subpar. (C).

Pub. L. 99–514, § 1810(e)(1)(A)Subsec. (e)(3)(A). , inserted “The preceding sentence shall not apply to the extent that the original issue discount is effectively connected with the conduct by such foreign related person of a trade or business within the United States unless such original issue discount is exempt from taxation (or is subject to a reduced rate of tax) pursuant to a treaty obligation of the United States.”

Pub. L. 99–514, § 1810(e)(1)(B)Subsec. (e)(5). , redesignated par. (4), relating to cross references, as (5).

Pub. L. 99–514, § 1301(j)(3)Subsec. (f)(3). , substituted “section 149(a)(3)” for “section 103(j)(3)”.

Pub. L. 99–514, § 511(b)Subsec. (h). , added subsec. (h). Former subsec. (h) redesignated (i).

Pub. L. 99–514, § 902(e)(1)Pub. L. 100–647, § 1009(b)(6)Subsec. (i)(2). , as amended by , substituted “section 265(a)(2)” for “section 265(2)”.

Pub. L. 99–514, § 511(b), redesignated former subsec. (h) as (i).

Pub. L. 98–369, § 56(b)1984—Subsec. (d)(3)(D). , designated existing provisions as cl. (i) and added cl. (ii).

Pub. L. 98–369, § 42(a)(3)Subsec. (e)(1). , substituted “debt instrument” for “bond” in two places and struck out “by an issuer (other than a natural person)” before “, the portion of the original issue”.

Pub. L. 98–369, § 42(a)(3)Subsec. (e)(2). , substituted provisions relating to debt instruments for provisions relating to bonds.

Pub. L. 98–369, § 128(c)Subsec. (e)(3). , added par. (3) relating to special rule for original issue discount on obligation held by related foreign person. Former par. (3), relating to exceptions, redesignated (4).

Pub. L. 98–369, § 42(a)(3), added par. (3) relating to exceptions.

Pub. L. 98–369, § 128(c)Subsec. (e)(4). , redesignated par. (3), relating to exceptions, as (4).

Pub. L. 98–369, § 42(a)(3), added par. (4) relating to cross references.

Pub. L. 98–369, § 127(f)Subsec. (f)(2)(C)(i). , redesignated existing provision as subcl. (I), and in subcl. (I) as so redesignated, inserted reference to subpar. (A) and substituted “or” for “and”, and added subcl. (II).

Pub. L. 98–369, § 612(c)Subsecs. (g), (h). , added subsec. (g) and redesignated former subsec. (g) as (h).

Pub. L. 97–3541982—Subsec. (d)(4). redesignated subpar. (D) as (B). Former subpars. (B) and (C), relating to partnerships and shareholders of electing small business corporations, respectively, were struck out.

Pub. L. 97–248, § 231(b)Subsec. (e). , added subsec. (e) relating to original issue discount. Former subsec. (e), setting forth cross references, redesignated (f).

Pub. L. 97–248, § 231(b), redesignated former subsec. (e), setting forth cross references, as (f).

Pub. L. 97–248, § 310(b)(2)Subsec. (f). , added subsec. (f) relating to the requirement that obligations be in registered form to be tax-exempt. Former subsec. (f), setting forth cross references, redesignated (g).

Pub. L. 97–248, § 310(b)(2)Subsec. (g). , redesignated former subsec. (f), setting forth cross references, as (g).

Pub. L. 94–455, § 1901(b)(8)(C)1976—Subsec. (b)(1). , substituted “organization described in section 170(b)(1)(A)(ii) and which is provided for a student of such organization” for “institution (as defined in section 151(e)(4)) and which is provided for a student of such institution”.

Pub. L. 94–455, § 209(a)(1)Subsec. (d)(1). , among other changes, substituted in subpar. (A) “$10,000” for “$25,000” and “$5,000” for “$12,500”, struck out subpar. (C) relating to the excess of net long-term capital gain over short-term capital loss and subpar. (D) relating to the excess of investment interest over amounts in subpar. (A), and in provisions following lettered paragraphs substituted “$10,000” for “$25,000” and struck out provisions relating to the determination of the amount referred to in subpar. (C).

Pub. L. 94–455, § 209(a)(1)Subsec. (d)(2). , among other changes, struck out provisions relating to the limitation on the amount of interest allowable by this par. and to reduction of disallowed investment interest for capital gain deduction purposes.

Pub. L. 94–455, § 209(a)(2)Subsec. (d)(3)(A). , inserted provision relating to determination of the amount of net investment income where taxpayer has investment interest for taxable year to which this subsection applies.

Pub. L. 94–455 Section 205(c)(3) of Pub. L. 94–455Subsec. (d)(3)(B)(iii). , §§ 205(c)(3), 1901(b)(3)(K), substituted “1250, and 1254” for “and 1250”, and “ordinary income” for “gain from the sale or exchange of property which is neither a capital asset nor property described in section 1231”. , which directed the amendment of subsec. (d)(3)(A)(iii), was executed by amending subsec. (d)(3)(B)(iii) to reflect the probable intent of Congress.

Pub. L. 94–455, § 209(a)(3)Subsec. (d)(3)(E). , substituted “limitation in paragraph (1)” for “limitations in paragraphs (1) and (2)(A)”.

Pub. L. 94–455, § 1906(b)(13)(A)Subsec. (d)(4)(B), (C). , struck out “or his delegate” after “Secretary”.

Pub. L. 94–455, § 209(a)(4)Dec. 31, 1975Subsec. (d)(5). , (5), redesignated par. (6) as (5) and inserted provision relating to the application of this paragraph after , on an allocation basis rather than a specific item basis. Former par. (5), relating to capital gains treatment of investment interest, was struck out.

Pub. L. 94–455, § 1901(b)(3)(K)Pub. L. 94–455, § 209(a)(4), directed the amendment of par. (5) by substituting “ordinary income” for “gain from the sale or exchange of property which is neither a capital asset nor property described in section 1231”, such par. (5) having been struck out by .

Pub. L. 94–455Subsec. (d)(6). , §§ 209(a)(4), 1906(b)(13)(A), redesignated par. (7) as (6) and struck out in provision following subpar. (B) “or his delegate” after “Secretary”. Former par. (6) redesignated (5).

Pub. L. 94–455, § 209(a)(6)Subsec. (d)(7). , added par. (7). Former par. (7) redesignated (6).

Pub. L. 92–178, § 304(b)(2)1971—Subsec. (d)(1)(B). , inserted “the amount (if any) by which the deductions allowable under this section (determined without regard to this subsection) and sections 162, 164(a)(1) or (2), or 212 attributable to property of the taxpayer subject to a net lease exceeds the rental income produced by such property for the property year, plus” after “plus”.

Pub. L. 92–178, § 304(d)Subsec. (d)(3)(C). , inserted reference to section 162.

Pub. L. 92–178, § 304(a)(2)(A)Subsec. (d)(4)(A)(i). , inserted “of the lessor” after “deductions” and “(other than rents and reimbursed amounts with respect to such property)” after “section 162”.

Pub. L. 92–178, § 304(a)(2)(B)Subsec. (d)(7). , added par. (7).

Pub. L. 91–1721969—Subsecs. (d), (e). added subsec. (d). Former subsec. (d) redesignated (e).

Pub. L. 88–2721964—Subsec. (b)(1). included the purchase of educational services, and defined “educational services”.

Pub. L. 88–9, § 1(a)1963—Subsecs. (c), (d). , (c), added subsec. (c), redesignated former subsec. (c) as (d) and added par. (5).

Statutory Notes and Related Subsidiaries

Effective Date of 2025 Amendment

Pub. L. 119–21, title VII, § 70108(b)July 4, 2025139 Stat. 163

December 31, 2025“The amendments made by this section [amending this section] shall apply to taxable years beginning after .”

, , , provided that:

section 70203(a) of Pub. L. 119–21Dec. 31, 2024section 70203(e) of Pub. L. 119–21 section 56 of this titleAmendment by applicable to indebtedness incurred after , see , set out as a note under .

Pub. L. 119–21, title VII, § 70303(c)July 4, 2025139 Stat. 195

“(1)

In general .—

December 31, 2024The amendments made by this section [amending this section] shall apply to taxable years beginning after .

“(2)

Special rule for short taxable years .—

December 31, 2024July 4, 2025The Secretary of the Treasury (or the Secretary’s delegate) may prescribe such rules as are necessary or appropriate to provide for the application of the amendments made by this section in the case of any taxable year of less than 12 months that begins after , and ends before the date of the enactment of this Act [].”

, , , provided that:

Pub. L. 119–21, title VII, § 70341(d)July 4, 2025139 Stat. 208

December 31, 2025“The amendments made by this section [amending this section] shall apply to taxable years beginning after .”

, , , provided that:

Pub. L. 119–21, title VII, § 70342(b)July 4, 2025139 Stat. 208

December 31, 2025“The amendments made by this section [amending this section] shall apply to taxable years beginning after .”

, , , provided that:

Effective Date of 2020 Amendment

Pub. L. 116–260, div. EE, title I, § 133(b)Dec. 27, 2020134 Stat. 3053

December 31, 2020“The amendment made by this section [amending this section] shall apply to amounts paid or accrued after .”

, , , provided that:

Pub. L. 116–136, div. A, title II, § 2306(b)Mar. 27, 2020134 Stat. 359

December 31, 2018“The amendments made by this section [amending this section] shall apply to taxable years beginning after .”

, , , provided that:

Effective Date of 2019 Amendment

Pub. L. 116–94, div. Q, title I, § 102(b)Dec. 20, 2019133 Stat. 3228

December 31, 2017“The amendment made by this section [amending this section] shall apply to amounts paid or accrued after .”

, , , provided that:

Effective Date of 2018 Amendment

Pub. L. 115–141, div. U, title IV, § 401(c)(1)(H)Mar. 23, 2018132 Stat. 1205

July 2, 1982“The amendments made by this paragraph [amending this section and sections 1271, 1272, and 1278 of this title] shall apply to debt instruments issued on or after .”

, , , provided that:

Pub. L. 115–141, div. U, title IV, § 401(c)(3)(C)Mar. 23, 2018132 Stat. 1206

section 1272 of this titleMarch 2, 1984“The amendments made by this paragraph [amending this section and ] shall apply to obligations issued on or after .”

, , , provided that:

Pub. L. 115–123, div. D, title I, § 40202(b)Feb. 9, 2018132 Stat. 145

December 31, 2016“The amendment made by this section [amending this section] shall apply to amounts paid or accrued after .”

, , , provided that:

Effective Date of 2017 Amendment

Pub. L. 115–97, title I, § 11043(b)Dec. 22, 2017131 Stat. 2087

December 31, 2017“The amendments made by this section [amending this section] shall apply to taxable years beginning after .”

, , , provided that:

Pub. L. 115–97, title I, § 13301(c)Dec. 22, 2017131 Stat. 2121

December 31, 2017“The amendments made by this section [amending this section and sections 381 and 382 of this title] shall apply to taxable years beginning after .”

, , , provided that:

Effective Date of 2015 Amendment

Pub. L. 114–113, div. Q, title I, § 152(b)Dec. 18, 2015129 Stat. 3066

December 31, 2014“The amendment made by this section [amending this section] shall apply to amounts paid or accrued after .”

, , , provided that:

Effective Date of 2014 Amendment

Pub. L. 113–295, div. A, title I, § 104(b)Dec. 19, 2014128 Stat. 4013

December 31, 2013“The amendment made by this section [amending this section] shall apply to amounts paid or accrued after .”

, , , provided that:

section 221(a)(25)(A) of Pub. L. 113–295Dec. 19, 2014section 221(b) of Pub. L. 113–295 section 1 of this titleAmendment by effective , subject to a savings provision, see , set out as a note under .

Effective Date of 2013 Amendment

Pub. L. 112–240, title II, § 204(c)Jan. 2, 2013126 Stat. 2323

December 31, 2011“The amendments made by this section [amending this section] shall apply to amounts paid or accrued after .”

, , , provided that:

Effective Date of 2010 Amendment

Pub. L. 111–312, title VII, § 759(b)Dec. 17, 2010124 Stat. 3323

December 31, 2010“The amendment made by this section [amending this section] shall apply to amounts paid or accrued after .”

, , , provided that:

Pub. L. 111–147Mar. 18, 2010section 502(f) of Pub. L. 111–147 section 149 of this titleAmendment by applicable to obligations issued after the date which is 2 years after , see , set out as a note under .

Effective Date of 2009 Amendment

Pub. L. 111–5, div. B, title I, § 1232(c)Feb. 17, 2009123 Stat. 341

“(1)

Suspension .—

August 31, 2008The amendments made by subsection (a) [amending this section] shall apply to obligations issued after , in taxable years ending after such date.

“(2)

Interest rate authority .—

December 31, 2009The amendments made by subsection (b) [amending this section] shall apply to obligations issued after , in taxable years ending after such date.”

, , , provided that:

Effective Date of 2007 Amendment

Pub. L. 110–142, § 3(b)Dec. 20, 2007121 Stat. 1804

December 31, 2007“The amendment made by this section [amending this section] shall apply to amounts paid or accrued after .”

, , , provided that:

Effective Date of 2006 Amendment

Pub. L. 109–432, div. A, title IV, § 419(d)Dec. 20, 2006120 Stat. 2968

section 6050H of this titleDecember 31, 2006“The amendments made by this section [amending this section and ] shall apply to amounts paid or accrued after .”

, , , provided that:

Pub. L. 109–222, title V, § 501(c)May 17, 2006120 Stat. 354

May 17, 2006“The amendments made by this section [amending this section] shall apply to taxable years beginning on or after the date of the enactment of this Act [].”

, , , provided that:

Effective Date of 2005 Amendment

Pub. L. 109–135 Pub. L. 108–357 section 403(nn) of Pub. L. 109–135 section 26 of this titleAmendment by effective as if included in the provision of the American Jobs Creation Act of 2004, , to which such amendment relates, see , set out as a note under .

Effective Date of 2004 Amendment

Pub. L. 108–357, title VIII, § 838(b)Oct. 22, 2004118 Stat. 1597

Oct. 22, 2004“The amendments made by this section [amending this section] shall apply to transactions in taxable years beginning after the date of the enactment of this Act [].”

, , , provided that:

Pub. L. 108–357, title VIII, § 841(c)Oct. 22, 2004118 Stat. 1598

section 267 of this titleOct. 22, 2004“The amendments made by this section [amending this section and ] shall apply to payments accrued on or after the date of the enactment of this Act [].”

, , , provided that:

Pub. L. 108–357, title VIII, § 845(e)Oct. 22, 2004118 Stat. 1601

October 3, 2004“The amendments made by this section [amending this section] shall apply to debt instruments issued after .”

, , , provided that:

Effective Date of 2003 Amendment

Pub. L. 108–27Dec. 31, 2002section 302(f) of Pub. L. 108–27 section 1 of this titleAmendment by applicable, except as otherwise provided, to taxable years beginning after , see , set out as an Effective and Termination Dates of 2003 Amendment note under .

Effective Date of 1999 Amendment

Pub. L. 106–170Dec. 31, 2000section 546(a) of Pub. L. 106–170 section 856 of this titleAmendment by applicable to taxable years beginning after , see , set out as a note under .

Effective Date of 1998 Amendment

Pub. L. 105–277 Pub. L. 105–34lPub. L. 105–277 section 86 of this titleAmendment by effective as if included in the provision of the Taxpayer Relief Act of 1997, , to which such amendment relates, see section 4003() of , set out as a note under .

Effective Date of 1997 Amendment

section 312(d)(1) of Pub. L. 105–34May 6, 1997section 312(d) of Pub. L. 105–34 section 121 of this titleAmendment by applicable to sales and exchanges after , with certain exceptions, see , set out as a note under .

Pub. L. 105–34, title V, § 503(d)Aug. 5, 1997111 Stat. 853

“(1)

In general .—

December 31, 1997The amendments made by this section [amending this section and sections 2053, 6166, and 6601 of this title] shall apply to estates of decedents dying after .

“(2)

Election .—

January 1, 1998January 1, 1999In the case of the estate of any decedent dying before , with respect to which there is an election under section 6166 of the Internal Revenue Code of 1986, the executor of the estate may elect to have the amendments made by this section apply with respect to installments due after the effective date of the election; except that the 2-percent portion of such installments shall be equal to the amount which would be the 4-percent portion of such installments without regard to such election. Such an election shall be made before in the manner prescribed by the Secretary of the Treasury and, once made, is irrevocable.”

, , , provided that:

Pub. L. 105–34, title X, § 1005(b)Aug. 5, 1997111 Stat. 912

“(1)

In general .—

June 8, 1997The amendment made by this section [amending this section] shall apply to disqualified debt instruments issued after .

“(2)

Transition rule .—

June 8, 1997The amendment made by this section shall not apply to any instrument issued after , if such instrument is—

“(A)

issued pursuant to a written agreement which was binding on such date and at all times thereafter,

“(B)

described in a ruling request submitted to the Internal Revenue Service on or before such date, or

“(C)

described on or before such date in a public announcement or in a filing with the Securities and Exchange Commission required solely by reason of the issuance.”

, , , provided that:

Effective Date of 1996 Amendment

section 1703(n)(4) of Pub. L. 104–188 Pub. L. 103–66oPub. L. 104–188 section 39 of this titleAmendment by effective as if included in the provision of the Revenue Reconciliation Act of 1993, , §§ 13001–13444, to which such amendment relates, see section 1703() of , set out as a note under .

Pub. L. 104–188, title I, § 1704(f)(2)(C)Aug. 20, 1996110 Stat. 1879

Pub. L. 101–239“The amendments made by this paragraph [amending this section] shall apply as if included in the amendments made by section 7210(a) of the Revenue Reconciliation Act of 1989 [].”

, , , provided that:

Effective Date of 1993 Amendment

section 13206(d)(1) of Pub. L. 103–66Dec. 31, 1992section 13206(d)(3) of Pub. L. 103–66 section 1 of this titleAmendment by applicable to taxable years beginning after , see set out as a note under .

Pub. L. 103–66, title XIII, § 13228(d)Aug. 10, 1993107 Stat. 495

December 31, 1993“The amendments made by this section [amending this section] shall apply to interest paid or accrued in taxable years beginning after .”

, , , provided that:

Effective Date of 1990 Amendment

Pub. L. 101–508 Pub. L. 101–239, title VII section 11701(n) of Pub. L. 101–508 section 42 of this titleAmendment by effective, except as otherwise provided, as if included in the provision of the Revenue Reconciliation Act of 1989, , to which such amendment relates, see , set out as a note under .

Effective Date of 1989 Amendment

Pub. L. 101–239, title VII, § 7202(c)Dec. 19, 1989103 Stat. 2332

“(1)

In general .—

July 10, 1989Except as provided in paragraph (2), the amendments made by this section [amending this section] shall apply to instruments issued after .

“(2)

Exceptions.—

“(A)

The amendments made by this section shall not apply to any instrument if—

“(i)

such instrument is issued in connection with an acquisition—

“(I)

July 10, 1989 which is made on or before ,

“(II)

July 10, 1989 for which there was a written binding contract in effect on , and at all times thereafter before such acquisition, or

“(III)

July 10, 1989 for which a tender offer was filed with the Securities and Exchange Commission on or before ,

“(ii)

the term of such instrument is not greater than—

“(I)

the term specified in the written documents described in clause (iii), or

“(II)

if no term is determined under subclause (I), 10 years, and

“(iii)

July 10, 1989 the use of such instrument in connection with such acquisition (and the maximum amount of proceeds from such instrument) was determined on or before , and such determination is evidenced by written documents—

“(I)

July 10, 1989 which were transmitted on or before , between the issuer and any governmental regulatory bodies or prospective parties to the issuance or acquisition, and

“(II)

which are customarily used for the type of acquisition or financing involved.

“(B)

July 10, 1989 The amendments made by this section shall not apply to any instrument issued pursuant to the terms of a debt instrument issued on or before , or described in subparagraph (A) or (D).

“(C)

The amendments made by this section shall not apply to any instrument issued to refinance an original issue discount debt instrument to which the amendments made by this section do not apply if—

“(i)

the maturity date of the refinancing instrument is not later than the maturity date of the refinanced instrument,

“(ii)

the issue price of the refinancing instrument does not exceed the adjusted issue price of the refinanced instrument,

“(iii)

the stated redemption price at maturity of the refinancing instrument is not greater than the stated redemption price at maturity of the refinanced instrument, and

“(iv)

the interest payments required under the refinancing instrument before maturity are not less than (and are paid not later than) the interest payments required under the refinanced instrument.

“(D)

July 10, 1989July 10, 1989 The amendments made by this section shall not apply to instruments issued after , pursuant to a reorganization plan in a title 11 or similar case (as defined in section 368(a)(3) of the Internal Revenue Code of 1986) if the amount of proceeds of such instruments, and the maturities of such instruments, do not exceed the amount or maturities specified in the last reorganization plan filed in such case on or before .”

, , , provided that:

Pub. L. 101–239, title VII, § 7210(b)Dec. 19, 1989103 Stat. 2342

“(1)

In general .—

July 10, 1989The amendment made by this section [amending this section] shall apply to interest paid or accrued in taxable years beginning after .

“(2)

Special rule for demand loans, etc .—

July 10, 1989September 1, 1989In the case of any demand loan (or other loan without a fixed term) which was outstanding on , interest on such loan to the extent attributable to periods before , shall not be treated as disqualified interest for purposes of section 163(j) of the Internal Revenue Code of 1986 (as added by subsection (a)).”

, , , provided that:

Effective Date of 1988 Amendment

Pub. L. 100–647, title I, § 1005(c)(13)Nov. 10, 1988102 Stat. 3392

section 10102 of Pub. L. 100–203“For purposes of applying the amendments made by this subsection [amending this section and sections 467, 1255, and 7872 of this title] and the amendments made by section 10102 of the Revenue Act of 1987 [, amending this section], the provisions of this subsection shall be treated as having been enacted immediately before the enactment of the Revenue Act of 1987.”

, , , provided that:

Pub. L. 100–647 Pub. L. 99–514 section 1019(a) of Pub. L. 100–647 section 1 of this titleAmendment by sections 1006(u)(1) and 1009(b)(6) of effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, , to which such amendment relates, see , set out as a note under .

section 2004(b)(1) of Pub. L. 100–647 Pub. L. 100–203, title X section 2004(u) of Pub. L. 100–647 section 56 of this titleAmendment by effective, except as otherwise provided, as if included in the provisions of the Revenue Act of 1987, , to which such amendment relates, see , set out as a note under .

Effective Date of 1987 Amendment

Pub. L. 100–203, title X, § 10102(c)Dec. 22, 1987101 Stat. 1330–386

December 31, 1987“The amendments made by this section [amending this section] shall apply to taxable years beginning after .”

, , , provided that:

section 10212(b) of Pub. L. 100–203 Pub. L. 99–514 section 10212(c) of Pub. L. 100–203 section 58 of this titleAmendment by effective as if included in the amendments made by section 501 of the Tax Reform Act of 1986, , see , set out as a note under .

Effective Date of 1986 Amendment

Pub. L. 99–514, title V, § 511(e)Oct. 22, 1986100 Stat. 2249

December 31, 1986“The amendments made by this section [amending this section and sections 467, 703, 1255, 1363, and 7872 of this title] shall apply to taxable years beginning after .”

, , , provided that:

section 902(e)(1) of Pub. L. 99–514Dec. 31, 1986section 902(f) of Pub. L. 99–514 section 265 of this titleAmendment by applicable to taxable years ending after , with certain exceptions and qualifications, see , set out as a note under .

section 1301(j)(3) of Pub. L. 99–514Aug. 15, 1986Pub. L. 99–514 section 141 of this titleAmendment by applicable to bonds issued after , except as otherwise provided, see sections 1311 to 1318 of , set out as an Effective Date; Transitional Rules note under .

Pub. L. 99–514 Pub. L. 98–369, div. A section 1881 of Pub. L. 99–514 section 48 of this titleAmendment by sections 1803(a)(4) and 1810(e)(1) of effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, , to which such amendment relates, see , set out as a note under .

Effective Date of 1984 Amendment

section 42(a)(3) of Pub. L. 98–369July 18, 1984section 44 of Pub. L. 98–369 section 1271 of this titleAmendment by applicable to taxable years ending after , see , set out as an Effective Date note under .

Pub. L. 98–369, div. A, title I, § 56(d)July 18, 198498 Stat. 574

July 18, 1984“The amendments made by this section [amending this section and sections 263 and 265 of this title] shall apply to short sales after the date of enactment of this Act [] in taxable years ending after such date.”

, , , provided that:

section 127(f) of Pub. L. 98–369July 18, 1984section 127(g)(1) of Pub. L. 98–369 section 871 of this titleAmendment by applicable to interest received after , with respect to obligations issued after such date, in taxable years ending after such date, see , set out as a note under .

section 128(c) of Pub. L. 98–369June 9, 1984section 128(d)(2) of Pub. L. 98–369 section 871 of this titleAmendment by applicable to obligations issued after , see , set out as a note under .

section 612(c) of Pub. L. 98–369Dec. 31, 1984Dec. 31, 1984section 612(g) of Pub. L. 98–369 section 25 of this titleAmendment by applicable to interest paid or accrued after , on indebtedness incurred after , see , set out as an Effective Date note under .

Effective Date of 1982 Amendment

Pub. L. 97–354Dec. 31, 1982section 6(a) of Pub. L. 97–354 section 1361 of this titleAmendment by applicable to taxable years beginning after , see , set out as an Effective Date note under .

Pub. L. 97–248Dec. 31, 1982section 310(d) of Pub. L. 97–248 section 103 of this titleAmendment by applicable to obligations issued after , with exceptions for certain warrants, see , set out as a note under .

Effective Date of 1976 Amendment

section 205(c)(3) of Pub. L. 94–455Dec. 31, 1975section 205(e) of Pub. L. 94–455 section 1254 of this titleAmendment by applicable with respect to taxable years ending after , see , set out as an Effective Date note under .

Pub. L. 94–455, title II, § 209(b)Oct. 4, 197690 Stat. 1543 Pub. L. 99–514, § 2Oct. 22, 1986100 Stat. 2095

“(1)

In general .—

December 31, 1975Except as provided in paragraph (2), the amendments made by subsection (a) [amending this section] shall apply to taxable years beginning after .

“(2)

september 11, 1975Indebtedness incurred before .—

In the case of indebtedness attributable to a specific item of property which—

“(A)

is for a specified term, and

“(B)

September 11, 1975September 10, 1975September 11, 1975 was incurred before , or is incurred after , pursuant to a written contract or commitment which on , and at all times thereafter before the incurring of such indebtedness, is binding on the taxpayer,

Oct. 4, 1976Oct. 4, 1976the amendments made by this section shall not apply, but section 163(d) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as in effect before the enactment of this Act []) shall apply. For purposes of the preceding sentence, so much of the net investment income (as defined in section 163(d)(3)(A) of such Code) for any taxable year as is not taken into account under section 163(d) of such Code, as amended by this Act, by reason of the last sentence of section 163(d)(3)(A) of such Code, shall be taken into account for purposes of applying such section as in effect before the date of enactment of this Act [] with respect to interest on indebtedness referred to in the preceding sentence.”

, , , as amended by , , , provided that:

Pub. L. 94–455Dec. 31, 1976section 1901(d) of Pub. L. 94–455 section 2 of this titleAmendment by section 1901(b)(8)(C), (3)(K) of applicable with respect to taxable years beginning after , see , set out as a note under .

Effective Date of 1971 Amendment

Pub. L. 92–178, title III, § 304(e)Dec. 10, 197185 Stat. 524

December 31, 1969December 31, 1971“The amendments made by this section to section 57 of the Internal Revenue Code of 1954 shall apply to taxable years beginning after . The amendments made by this section to section 163 of such Code shall apply to taxable years beginning after .”

, , , provided that:

Effective Date of 1969 Amendment

Pub. L. 91–172, title II, § 221(b)Dec. 30, 196983 Stat. 576

December 31, 1971“The amendments made by this section [amending this section] shall apply to taxable years beginning after .”

, , , provided that:

Effective Date of 1964 Amendment

Pub. L. 88–272, title II, § 224(d)Feb. 26, 196478 Stat. 79

section 483 of this title section 481 of this titleDecember 31, 1963June 30, 1963July 1, 1963December 31, 1963“The amendments made by subsections (a) [enacting ] and (b) [amending the analysis preceding ] shall apply to payments made after , on account of sales or exchanges of property occurring after , other than any sale or exchange made pursuant to a binding written contract (including an irrevocable written option) entered into before . The amendments made by subsection (c) [amending this section] shall apply to payments made during taxable years beginning after .”

, , , provided that:

Effective Date of 1963 Amendment

Jan. 1, 1962section 2 of Pub. L. 88–9 section 1055 of this titleSubsec. (c) effective as of , and applicable with respect to taxable years ending on or after such date, see , set out as an Effective Date note under .

Savings Provision

section 401(b)(12) of Pub. L. 115–141Mar. 23, 2018Mar. 23, 2018section 401(e) of Pub. L. 115–141 section 23 of this titleFor provisions that nothing in amendment by be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to , for purposes of determining liability for tax for periods ending after , see , set out as a note under .

Application of Subsection (h) to Taxable Years Beginning in 1987

Pub. L. 100–647, title I, § 1005(c)(14)Nov. 10, 1988102 Stat. 3392

“(A)

For purposes of applying section 163(h) of the 1986 Code to any taxable year beginning during 1987, if, incident to a divorce or legal separation—

“(i)

an individual acquires the interest of a spouse or former spouse in a qualified residence in a transfer to which section 1041 of the 1986 Code applies, and

“(ii)

such individual incurs indebtedness which is secured by such qualified residence,

Pub. L. 100–203, title Xthe amount determined under paragraph (3)(B)(ii)(I) of section 163(h) of the 1986 Code (as in effect before the amendments made by the Revenue Act of 1987 []) with respect to such qualified residence shall be increased by the amount determined under subparagraph (B).

“(B)

The amount determined under this subparagraph shall be equal to the excess (if any) of—

“(i)

the lesser of the amount of the indebtedness described in subparagraph (A)(ii), or the fair market value of the spouse’s or former spouse’s interest in the qualified residence as of the time of the transfer, over

“(ii)

the basis of the spouse or former spouse in such interest in such residence (adjusted only by the cost of any improvements to such residence).”

, , , provided that:

Plan Amendments Not Required Until January 1, 1989

Pub. L. 99–514Jan. 1, 1989section 1140 of Pub. L. 99–514 section 401 of this titleFor provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after , see , as amended, set out as a note under .

Transitional Rule for Treatment of Certain Income From S Corporations

Pub. L. 98–369, div. A, title X, § 1066July 18, 198498 Stat. 1048 Pub. L. 99–514, § 2Oct. 22, 1986100 Stat. 2095

“(a)

In General .—

If—

“(1)

a corporation had an election in effect under subchapter S of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] for the taxable years of such corporation beginning in 1982, 1983, and 1984, and

“(2)

a shareholder of such corporation makes an election to have this section apply,

Pub. L. 97–354then any qualified income which such shareholder takes into account by reason of holding stock in such corporation for any taxable year of such corporation beginning in 1983 or 1984 shall be treated for purposes of section 163(d) of the Internal Revenue Code of 1986 as such income would have been treated but for the enactment of the Subchapter S Revision Act of 1982 [, see Tables for classification].

“(b)

Qualified Income .—

For purposes of subsection (a), the term ‘qualified income’ means any income other than income which is attributable to personal services performed by the shareholder for the corporation.

“(c)

Election .—

The election under subsection (a)(2) shall be made at such time and in such manner as the Secretary of the Treasury or his delegate may by regulations prescribe.”

, , , as amended by , , , provided that:

Transitional Rule

section 231(b) of Pub. L. 97–248July 1, 1982July 1, 1982section 231(e) of Pub. L. 97–248 section 1232A of this titleFor provision that, for purposes of amendments by , any evidence of indebtedness issued pursuant to a written commitment which was binding on , and at all times thereafter be treated as issued on , see , set out as a note under .