Excess Business Interest Expense

Individual with excess business interest expense from a partnership, what becomes of the excess business interest expense if the K-1 is final year?

The following is from https://www.irs.gov/newsroom/basic-ques ... st-expense. It does not address what to do if the partnership is final. Is the excess business interest not usable anymore?

Q15. How does the section 163(j) limitation apply to partnerships and S corporations?
A15. The section 163(j) limitation is applied at the partnership level. As provided in Q/A 1, the amount of deductible business interest expense in a taxable year cannot exceed the sum of the partnership’s business interest income, 30% of the partnership’s ATI, and the partnership’s floor plan financing interest expense. Business interest expense that may be deducted upon application of the section 163(j) limitation is taken into account in determining the non-separately stated taxable income or loss of the partnership. Any business interest expense of the partnership that is disallowed upon application of the section 163(j) limitation is allocated to each partner in the same manner as the non-separately stated taxable income or loss of the partnership. This amount is called excess business interest expense.

A partner carries forward its share of excess business interest expense. In a succeeding taxable year, a partner may treat its excess business interest expense as business interest expense paid or accrued by the partner to the extent the partner is allocated excess taxable income or excess business interest income from the same partnership. Excess taxable income is the amount of ATI of the partnership that was in excess of what it needed to deduct its business interest expense, and excess business interest income is the amount by which business interest income exceeded business interest expense at the partnership level. Excess taxable income is allocated to each partner in the same manner as the non-separately stated taxable income or loss of the partnership. An allocation of excess taxable income to a partner increases the partner’s ATI. Similarly, an allocation of excess business interest income to a partner increases the partner’s business interest income. Once excess business interest expense is treated as business interest expense paid or accrued by the partner, such business interest expense is subject to the partner’s section 163(j) limitation, if any (see Q/A 1).

S corporations apply the section 163(j) limitation at the S corporation level. Any business interest expense of the S corporation that is disallowed upon application of the section 163(j) limitation is not allocated to its shareholders, but is instead carried over at the S corporation level to its succeeding taxable years. An S corporation allocates any excess taxable income and excess business interest income to its shareholders on a pro-rata basis.

Section 1.163(j)-6 of the proposed regulations provides special rules and defined terms relating to the application of section 163(j) to partnerships and S corporations.

Looks like basis increased by carryover, see Reg 1.163(j)-6(h)(3).

Thanks