Section II—Adjusted Taxable Income

Enter all numbers as positive amounts unless otherwise indicated.

Tentative Taxable Income

Line 6. Tentative taxable income. Enter tentative taxable income computed as though all of the business interest expense is otherwise allowable business interest expense. In figuring tentative taxable income, consider all other applicable limitations such as sections 163(f), 267, basis (sections 704 and 1366), at-risk (section 465) and passive activity loss (section 469), and excess business loss (section 461(l)) limitations prior to inputting the tentative taxable income amount.

The tentative taxable income of a partnership or S corporation shall include both separately and non-separately stated items. For a partnership, this will generally be the amount on Form 1065, Analysis of Net Income (Loss), line 1, Net income (loss), less guaranteed payments, Schedule K, line 4c. If adjustments to a partnership’s income or deductions resulting from section 743(b) basis adjustments are taken into account in calculating a partnership’s net income (loss), remove the effects of those adjustments by adding or subtracting the income, gain, loss, or deduction resulting from the section 743(b) basis adjustments. For an S corporation, this will generally be the amount on Form 1120-S, Schedule K, line 18, Income/loss reconciliation.

To compute a partnership’s and partner’s ATI, the partnership (not the partner) takes into account items resulting from adjustments to property under section 734(b). See Regulations section 1.163(j)-6(d)(2). However, to compute ATI or items resulting from adjustments to property under section 743(b), the partner (not the partnership) takes into account such items.

These adjustments are entered on line 13 (or line 20) of Form 8990.

Additions (Lines 7 Through 16) Add back to tentative taxable income certain adjustments to arrive at ATI. Do not include amounts that were not taken into account in tentative taxable income on line 6. See Adjusted taxable income (ATI) , earlier.

Line 7. Any item of loss or deduction which is not properly allocable to a trade or business of the tax- payer. Enter any item of loss or deduction that is not properly allocable to a trade or business of the taxpayer, including the taxpayer’s loss or deduction from any excepted trades or businesses. The amount of the addition is limited to the amount the additional item affected tentative taxable income.

For example, a personal casualty loss is not allocable to a trade or business of a taxpayer, which would be

entered on line 7 as a positive amount to the extent the casualty loss offset tentative taxable income.

Do not include amounts from pass-through entities, which are entered on line 12.

Line 8. Any business interest expense not from a pass-through entity. Add to tentative taxable income all business interest expense, to the extent includable in tentative taxable income, that is not from a pass-through entity. For section 163(j), business interest expense does not include interest from an excepted trade or business.

Note: Interest expense that is allocable to an excepted trade or business is not treated as business interest expense.

Line 9. Amount of any net operating loss deduction under section 172. Enter the amount of any net operating loss deduction carried forward or carried back to the current tax year under section 172.

Line 10. Amount of any qualified business income deduction allowed under section 199A. Enter the amount of any qualified business income deduction allowed under section 199A. To determine ATI, the section 199A deduction on line 10 is determined without regard to section 163(j). See Regulations section 1.163(j)-1(b)(43).

Line 11. Deduction allowable for depreciation, amor- tization, or depletion attributable to a trade or busi- ness. Enter the amounts allowable for depreciation, amortization, or depletion attributable to a trade or business.

Do not include amounts from pass-through entities, which will be entered on line 12.

Line 12. Amount of any loss or deduction items from a pass-through entity. Enter any amount of loss or deduction items from pass-through entities (regardless of whether the entity is subject to the section 163(j) limitation).

The ATI of a beneficiary (including a tax-exempt beneficiary) of a trust or a decedent’s estate is reduced by any income (including any distributable net income)

Line 13. Other additions. Enter the amount of any capital loss carryback or carryover.

A taxpayer subject to the section 163(j) limitation who has an interest in a pass-through entity not subject to the section 163(j) limitation should include their share of the entity’s ATI in other additions. See Ownership of pass-through entities not subject to the section 163(j) limitation , earlier.

A C corporation should include investment income from a pass-through entity and any other tax items of a partnership that are neither properly allocable to a trade or business of the partnership nor described in section 163(d) and that are allocated to a C corporation partner as separately stated items as other additions. See C corporation business interest expense and income, earlier.

For trusts and estates subject to section 163(j), add back the amount of any income distribution deduction under sections 651 and 661, and the deduction under section 642(c).

10 Instructions for Form 8990 (Rev. 12-2025)

received from the trust or estate by the beneficiary to the extent such income was necessary to permit a deduction under section 163(j)(1)(B) and Regulations section 1.163(j)-2(b) for any business interest expense of the trust or estate that was in excess of any business interest income of the trust or estate.

A U.S. shareholder of an applicable CFC should include an amount equal to the sum of any specified deemed inclusions that were included in the computation of the taxpayer’s tentative taxable income, reduced by the portion of the deduction allowed under section 250(a) by reason of the specified deemed inclusions. See Regulations section 1.163(j)-1(b)(1)(ii)(G). Separately list each reduction by stand-alone applicable CFC or CFC group member.

A U.S. shareholder of an applicable CFC should include the amount added to the U.S. shareholder’s tentative taxable income under 2020 Proposed Regulations section 1.163(j)-7(j). Separately list each inclusion by stand-alone applicable CFC or CFC group member.

Also include any other reductions described in published guidance. If none, leave blank.

A relevant foreign corporation should include the amount of any deduction for foreign income tax (as defined in Regulations section 1.960-1(b)) that was included in computing tentative taxable income on line 6 since foreign income taxes should not reduce ATI. See Regulations section 1.163(j)-7(g)(3).

Also include any other additions described in published guidance. If none, leave blank.

Line 15. Total current year S corporation sharehold- er’s excess taxable income. Enter the amount of any S corporation excess taxable income reported on Form 8990, Schedule B, line 46, column (c).

Reductions (Lines 17 Through 21) Subtract from tentative taxable income certain adjustments to arrive at ATI. Do not include amounts that were not taken into account in tentative taxable income on line 6. See ATI, defined earlier.

Line 17. Any item of income or gain which is not properly allocable to a trade or business of the tax- payer. Enter any item of income or gain, which is not properly allocable to a trade or business of the taxpayer, including the taxpayer’s income or gain from any excepted trade(s) or business(es).

A C corporation should include investment expenses from a pass-through entity and other tax items of a partnership that are neither properly allocable to a trade or business of the partnership nor described in section 163(d) and that are allocated to a C corporation partner as separately stated items as other reductions. See C corporation business interest expense and income , earlier.

Line 22. Adjusted taxable income (ATI). If line 22 is zero or less, enter zero. However, CFC group members should follow instructions below.

CFC group members. If a CFC group member has a negative amount of ATI, the CFC group member should report the negative amount on line 22. See Regulations section 1.163(j)-7(c)(2)(i).