Timing Critical Alert: Ability to Withdraw Elections Section 163(j) RPTB Election Ends on 10/15

With 9/15 in the rearview mirror and 10/15 rapidly approaching, the last thing taxpayers or businesses want to think about is tax planning. Unfortunately, some areas can’t wait. Specifically, decisions around Real Property Trade or Business elections under §163(j) must be made before the 10/15 deadline.

Understanding the Section 163(j) Real Property Trade or Business Election

Under the Tax Cuts and Jobs Act (TCJA), §163(j) limited the amount of interest companies could deduct to 30% of Adjusted Taxable Income (ATI). For most years, ATI follows EBITDA; however, for 2022, 2023, and 2024, ATI was limited to EBIT. This drastically limited the amount of business interest companies could deduct.

Certain businesses can elect out of these limitations, though these elections come with limitations businesses need to consider.

The most common election is a Real Property Trade or Business Election (RPTB). When eligible companies make an RPTB election, they are not limited to the amount of interest they can deduct. However, making the RPTB election requires the company to use the Alternative Depreciation System (ADS) for 39-year Real Property, 27.5-year Real Property, and 15-year Qualified Improvement Property (QIP). This matters most for QIP, since QIP is bonus-eligible, but when depreciating under ADS, you cannot take bonus depreciation.

The One Big Beautiful Bill Act (OBBBA) returned the ATI definition to EBITDA and restored 100% bonus depreciation. As a result, companies that made an RPTB election in 2022, 2023, and 2024 may no longer want that election. Unfortunately, this election is traditionally irrevocable.

IRS Notice 2026-17: Option to Revoke a Prior RPTB Election

Earlier this year, the IRS acknowledged this matter and issued Notice 2026-17. This notice allows certain taxpayers to revoke a previously made RPTB election from 2022, 2023, or 2024 by amending those returns.

Unfortunately, as with many issues, this ability to revoke an election comes with restrictions. First, you can revoke the election only for 2022, 2023, or 2024. Additionally, and more importantly, you must revoke the election before the end of the statute of limitations on assessment for the year in which you file the amended return, or October 15, 2026, whichever is sooner.

For companies that filed their 2022 return by September 15, 2023, that statute ran out on September 15, 2026. For 2023 and 2024 returns, companies have until 10/15 to adjust their election, or companies will be stuck with the original RPTB election moving forward.

Why Adjust a Section 163(j) RPTB Election?

Some taxpayers have no reason to adjust this election and may choose to keep the election forward and use it on future returns. However, for companies making future upgrades, facility expansions, or other capital improvements, this election could be harmful.

Because the RPTB election requires ADS for QIP and 39-year real property, electing RPTB limits some tax benefits — specifically, bonus depreciation on QIP and the Qualified Production Property (QPP) deduction under §168(n).

Take a real estate business that acquired a property in 2023 for $15 million. In 2023, they made an RPTB election to maximize interest deductions on their 2023, 2024, and 2025 returns. In 2026, they completed a $20 million renovation of their property. The $20 million is broken down as follows:

• $5 million 39-year property
• $10 million QIP
• $5 million personal property

If they maintain their RPTB election, they will be able to take 100% bonus on the $5 million in personal property but will not be able to take bonus on the $10 million in QIP. Instead, the QIP will be depreciated on a straight-line method. This means the company will miss out on $10 million in deductions on its 2026 return.

Similarly, if a manufacturing company has a real estate entity and plans future expansions, the new QPP deduction is disallowed for assets subject to ADS. If they plan on future expansions, they will not be able to access this lucrative accelerated depreciation deduction on their future returns.

What Businesses Should Do Before the October 15 Deadline?

Because the window to amend returns to revoke this election is limited, companies and their CPAs need to quickly evaluate current and future capital plans, compare the cost of expansion plans to the annual interest expense incurred, and determine whether the RPTB election is still right for them. If a company made an RPTB election on its 2023 or 2024 return and wants to change it, the company must do so on or before October 15, 2026.

While this time of year is busy for both CPAs and their clients, it is critical to look at this election in the next few weeks. While it is too late for most 2022 elections, it is not too late for 2023 and 2024 elections.

If your client made an RPTB election in 2023 or 2024, contact your McGuire Sponsel advisor now to determine whether revoking it before 10/15 makes sense for your business.

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