INSIGHT

Rev. Proc. 2026-17: Why Real Estate, Farming, and Utility Businesses Should Revisit Their §163(j) Elections Now 

Erika Farr • April 22, 2026

Services: Tax Industries: Agribusiness, Real Estate

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If your business previously elected to opt out of the Section 163(j) business interest expense limitation, you may have done so for good reason — at the time, avoiding that cap on interest deductions made sense.  

But the tax landscape has shifted significantly, and a new IRS revenue procedure is giving eligible businesses a rare second look. Rev. Proc. 2026-17, released March 18, 2026, creates a time-sensitive opportunity for electing real property trades or businesses, electing farming businesses, and excepted regulated utility trades or businesses to reconsider elections they made as far back as 2022 — and potentially unlock substantial bonus depreciation deductions in the process. 

Here’s what you need to know, and why now is the time to act. 

The Trade-Off You Made — And Why It Might No Longer Be the Right One 

How the §163(j) Election Works 

Under Section 163(j), businesses face a cap on the amount of business interest expense they can deduct in a given year. To escape that limitation, certain businesses — real property trades or businesses, farming businesses, and regulated utilities — could elect to be treated as “excepted” from the rule entirely. 

The catch? Opting out of §163(j) came with a price: your depreciable property had to be depreciated using the Alternative Depreciation System (ADS), rather than the standard Modified Accelerated Cost Recovery System (MACRS). And ADS-classified property is generally ineligible for bonus depreciation under Section 168(k). 

For many businesses, that was a worthwhile trade-off. Fully deducting interest costs in the year they were paid often outweighed the slower depreciation schedules — especially during years when bonus depreciation rates were declining and the value of that deduction was shrinking. 

What Changed Under the OBBBA 

The “One Big Beautiful Bill Act” (OBBBA) has materially altered the calculus. Among its provisions, the OBBBA made significant amendments to both Section 163(j)(8) and Section 168(k) — changes that have made bonus depreciation considerably more valuable again for many property owners. 

If your business is locked in an election several years ago and hasn’t revisited it since, you may now be leaving significant deductions on the table. 

What Rev. Proc. 2026-17 Actually Allows 

The IRS designed this revenue procedure specifically for taxpayers caught in the position of having made an election that no longer serves their best interests. Here’s a breakdown of the key provisions: 

• Election Withdrawal: Eligible taxpayers can withdraw a prior §163(j)(7) election made for tax years beginning in 2022, 2023, or 2024. Withdrawing the election triggers the ability to make associated depreciation adjustments under Section 168 — including the potential to claim bonus depreciation you were previously excluded from. 
• Late Bonus Depreciation Opt-Out: If you withdraw a prior election but don’t want bonus depreciation to apply to every affected class of property, you can make a late election under §168(k)(7) to opt out of bonus depreciation for specific property classes.  
• CFC Group Election Relief: For international businesses with controlled foreign corporation (CFC) structures, the revenue procedure allows the revocation or making of a CFC group election without being constrained by the standard 60-month limitation, for the first specified period beginning after December 31, 2024. 
• BBA Partnership Relief: Eligible partnerships subject to the centralized audit rules (BBA partnerships) can file amended Forms 1065 for tax years 2022, 2023, or 2024 — rather than the more cumbersome administrative adjustment request (AAR) process — subject to certain conditions. 

Who Should Pay Close Attention 

Real Estate Businesses 

If you operate a real property trade or business and elected out of §163(j) to preserve full interest deductibility, you need to model your position under the current rules. With bonus depreciation rates now more favorable under the OBBBA, the depreciation benefit of withdrawing your election may well exceed the cost of being subject to the interest limitation — particularly if your leverage ratios have changed, interest rates have shifted, or your property portfolio has grown. 

Farming and Agricultural Businesses 

Farming businesses that made the §163(j)(7) election face similar considerations. Agricultural operations often carry significant depreciable property — equipment, structures, land improvements — and the ability to front-load those deductions through bonus depreciation can have a meaningful impact on effective tax rates and cash flow. If your operation has made capital investments since your election was filed, this is a window worth examining carefully. 

Regulated Utilities 

Regulated utilities operate under a unique set of constraints, but the transition guidance applies here as well. If the OBBBA amendments alter how your depreciation and interest expense interact at a rate-regulated level, withdrawing the election and recalibrating your depreciation posture may be worth serious analysis. 

The Risk of Waiting 

This revenue procedure is a transition window, not a permanent option. Elections and withdrawals under the Code are typically irrevocable once made, which is precisely why the IRS issued specific procedural guidance here — and why timeliness matters. 

Beyond the window itself, the tax modeling required to determine whether withdrawing your election makes sense is not trivial. You’ll need to: 

• Quantify the value of bonus depreciation you would recover by withdrawing the election 
• Assess how your business interest expense deduction limitation would change under §163(j) 
• Evaluate the interplay with any applicable state tax rules (not all states conform to bonus depreciation or §163(j)) 
• Consider the impact on any partnership structures, particularly if you’re a BBA partnership with open years from 2022 through 2024 
• Determine whether a selective opt-out of bonus depreciation for specific property classes makes more sense than a full election withdrawal 

Getting this analysis wrong — or missing the window entirely — could mean years of suboptimal tax outcomes that are difficult or impossible to unwind later. 

How BPM Can Help 

BPM’s tax service professionals work closely with the real estate industry, agricultural businesses, and other capital-intensive industries to navigate exactly these kinds of inflection points. When the rules change, the businesses that respond quickly and strategically are the ones that come out ahead. 

Our professionals can help you: 

• Review your current §163(j) election status and assess whether withdrawal makes sense given your specific facts and circumstances 
• Model the tax impact of withdrawing the election — including projected bonus depreciation recovery, revised interest expense limitations, and multi-year cash flow implications 
• Navigate the procedural requirements of Rev. Proc. 2026-17, including the amended return or AAR filing process for BBA partnerships 
• Coordinate state tax implications, where conformity to bonus depreciation and interest expense rules varies significantly 
• Develop a long-term depreciation strategy that aligns with your capital investment plans going forward 

Take the Next Step 

Rev. Proc. 2026-17 represents a meaningful opportunity — but only if you move before the window closes. Whether you’re a real estate investor, a farming operation, a regulated utility, or an advisor to any of these businesses, now is the time to get clarity on where you stand. 

Contact BPM today to connect with a member of our tax group and find out whether withdrawing your §163(j) election is the right move for your business.