How To Withdraw A §163(j)(7) Elections Under Rev. Proc. 2026-17

Author: Shelley Chen, Tax Partner and Wyatt Nebe, Tax Manager
Date Published: July 2026

Key Takeaways:

• Rev. Proc. 2026-17 allows taxpayers to withdraw previously “irrevocable” §163(j)(7) elections.
• Requires amended returns or AARs for all affected years (generally 2022–2024).
• Deadline: earlier of October 15, 2026, or the statute of limitations.
• Withdrawal may unlock bonus depreciation and more favorable ATI calculations.

 

Overview:

 
Rev. Proc. 2026-17 provides taxpayers with a rare opportunity to revisit prior §163(j)(7) elections, including those made by real property trades or businesses, farming businesses, and regulated utilities.

These elections were historically attractive because they allowed taxpayers to fully deduct business interest expense by opting out of the §163(j) limitation. However, the tradeoff required ADS depreciation and no bonus depreciation.

With recent legislative changes restoring 100% bonus depreciation and more favorable EBITDA-based ATI calculations starting in 2025, the economics have shifted, making it worthwhile to reconsider those elections.

Who qualifies:

Taxpayers are eligible if they:

• Made a valid §163(j)(7) election on a timely filed return, and
• The election applied to tax years beginning in 2022, 2023, or 2024.

Although §163(j)(7) elections date back to 2018, this relief is limited to more recent years and their downstream effects.

Why consider withdrawal:

Withdrawing the election treats it as if it were never made, allowing taxpayers to:

• Revert from ADS to MACRS,
• Claim bonus depreciation on qualifying property, and
• Apply §163(j) under a more favorable ATI regime.

 

Insight

For capital-intensive taxpayers, especially in real estate, this can significantly accelerate deductions. In many cases, the benefit of bonus depreciation outweighs the potential limitation on interest expense.

How it works:

To withdraw the election, taxpayers must:

• File amended returns or AARs for each affected year, and
• Recompute the year as if the election had never been made, including:
• Depreciation methods and lives,
• Interest expense limitations, and
• All related tax attributes (e.g., NOLs, basis, carryforwards).

Deadline:

• Earlier of October 15, 2026, or
• The applicable statute of limitations.

 

Technical Considerations

The decision to withdraw is highly fact-specific and requires modeling. Key areas include:

• Depreciation impact: Switching from ADS to MACRS may significantly accelerate deductions.
• §163(j) limitation: Interest may become partially limited, creating carryforwards.
• Broader tax effects: Changes can impact NOLs, QBI, state taxes, and partnership allocations.
• Partnership complexity: AAR filings and partner-level adjustments require careful coordination.

 

Planning Insight

Taxpayers should evaluate:

• The tradeoff between bonus depreciation and interest limitation,
• Timing of future capital investments, and
• Administrative cost of amended filings.

A thoughtful, model-driven approach is critical to determine whether withdrawal produces a net benefit.

Bottom Line

Rev. Proc. 2026-17 creates a valuable opportunity to undo a previously permanent election. For many taxpayers, especially in real estate and other capital-intensive industries, the ability to combine bonus depreciation with improved §163(j) rules can meaningfully enhance tax efficiency and cash flow, if executed thoughtfully.

This article provides a broad overview of Rev. Proc. 2026-17, which responds to OBBBA restoring 100% bonus depreciation and updating the calculation for Adjusted Taxable Income (ATI).

At Frank, Rimerman, our partnership and corporate tax, audit, and investment professionals work closely with entities to carefully review, plan, and provide advice related to Rev. Proc. 2026-17 and any §163(j)(7) previous elections made.

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About the Authors:

Shelley Chen, Partner
Income Tax Planning and Consulting / LinkedIn / E-mail
Shelley has over 20 years of public accounting experience. Her expertise includes tax planning and compliance for executives and high net worth individuals and their families, including start-up entities and related closely held businesses. She works with a diverse range of clients consisting of a high concentration of investments including real estate holding and development organizations, venture capital and investment enterprises.

Wyatt Nebe
Income Tax Planning and Consulting / E-mail
Wyatt Nebe is a Tax Manager at Frank, Rimerman + Co.

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