8866 Instructions for Form 8866

Instructions for Form 8866

Department of the Treasury
Internal Revenue Service

(Rev. November 2018)

Interest Computation Under the Look-Back Method for Property Depreciated Under
the Income Forecast Method
Section references are to the Internal Revenue
Code unless otherwise noted.

General Instructions

in which the property was placed in
service.

For the latest information about
developments related to Form 8866 and
its instructions, such as legislation
enacted after they were published, go to
IRS.gov/Form8866.

Exception. A tax year is not a
recomputation year for the property if,
for each year before the recomputation
year, the actual income from the
property is within 10% of the estimated
income taken into account in
determining the depreciation deduction
for the property under the income
forecast method.

What's New

Additional Costs

Future Developments

The tax rate used for the interest
computation for individuals,
corporations, and certain pass-through
entities has changed. See the
instructions for line 6, later.

Purpose of Form

Use Form 8866 to figure the interest due
or to be refunded under the look-back
method of section 167(g)(2) for property
placed in service after September 13,
1995, that is depreciated under the
income forecast method as described in
section 167(g).

Any costs incurred after the property
was placed in service (that is not treated
as separate property—see below) are
taken into account by discounting (using
the federal mid-term rate determined
under section 1274(d) as of the time the
cost was incurred) the cost to its value
as of the date the property was placed
in service. However, you may elect not
to apply this discounting rule to any
property.

The income forecast method
generally is limited to depreciation of:
• Motion picture films,
• Video tapes,
• Sound recordings,
• Copyrights,
• Books, and
• Patents.

Separate property. The following
costs are treated as separate property.
• Any costs incurred related to any
property after the 10th tax year after the
tax year the property was placed in
service.
• Any other costs incurred if they are
significant and give rise to a significant
increase in the income from the property
which was not included in the estimated
income from the property.

Who Must File

Pass-Through Entities

General Rule

You generally must file Form 8866 to
figure interest under the look-back
method for each recomputation year for
property placed in service after
September 13, 1995, that you
depreciate under the income forecast
method.

Exception. The look-back method
does not apply for any property that had
an unadjusted basis (total capitalized
cost) of $100,000 or less at the end of
the recomputation year.

Recomputation Year
A recomputation year is generally the
3rd and 10th tax years after the tax year
Sep 24, 2018

A pass-through entity (partnership, S
corporation, or trust) that is not closely
held must apply the look-back method
at the entity level to any property for
which substantially all of the gross
income is from U.S. sources. A
pass-through entity is considered
closely held if, at any time during any
tax year for which there is income
related to the property, 50% or more (by
value) of the beneficial interests in the
entity is held (directly or indirectly) by or
for five or fewer persons. For this
purpose, rules similar to the constructive
ownership rules of section 1563(e)
apply.
If you are an owner of an interest in a
pass-through entity in which any
Cat. No. 26332N

property was depreciated under the
income forecast method and the entity
is not subject to the look-back method at
the entity level for that property, you
must file this form for your tax year that
ends with or includes the end of the
entity's recomputation year. The
pass-through entity will provide on
Schedule K-1 the information you need
to complete this form.

Change of Taxpayer
If the taxpayer deducting depreciation
under the income forecast method
changes prior to the recomputation
year, the taxpayer as of the end of the
recomputation year will be responsible
for the payment of interest, if any, due
for any year in which the property was
depreciated under the income forecast
method. Generally, only the taxpayer
that had depreciated property under the
income forecast method in a year that
an overpayment occurred may request
a refund of interest on the overpayment.

Filing Instructions
Interest You Owe (or No
Interest Is To Be Refunded to
You)

If you owe interest, or no interest is to be
refunded to you, attach Form 8866 to
your income tax return. You do not have
to sign Form 8866 and the paid preparer
section does not have to be completed.
For taxpayers other than
partnerships, include any interest due in
the amount to be entered for total tax
(after credits and other taxes) on your
return (for example, 2018 Form 1040,
line 15; or 2018 Form 1120, Schedule J,
line 9d, etc.). Next to the entry space,
write “From Form 8866” and the amount
of interest due.
For partnerships, write “From Form
8866” and any interest due in the
bottom margin of the tax return, and
attach a check or money order for the
full amount payable to “United States
Treasury.” Write the partnership's
employer identification number (EIN),
daytime phone number, and “Form
8866 Interest” on the check or money
order.

Interest To Be Refunded to You

If interest is to be refunded to you, do
not attach Form 8866 to your income tax
return. Instead, file Form 8866
separately with the IRS at the applicable
address listed below.
• Individuals:

•

Department of Treasury
Internal Revenue Service
Philadelphia, PA 19255-0001
All others:
Department of Treasury
Internal Revenue Service
Cincinnati, OH 45999-0001

Complete the Signature section on
Form 8866 following the instructions for
the Signature section of your income tax
return. If you file a joint return, the
signature of both spouses is required on
Form 8866. A paid preparer also must
complete the Signature section. If
additional Forms 8866 are needed (to
show more than 2 prior tax years), sign
only the first Form 8866.
File Form 8866 by the date you are
required to file your income tax return
(including extensions). Keep a copy of
Form 8866 and any attached schedules
for your records.

Filing a Corrected Form
8866

You must file a corrected Form 8866
only if the amount shown on line 6 for
any prior year changes as a result of an
error you made, an income tax
examination, or the filing of an amended
tax return.
When completing line 1 of the
corrected Form 8866, follow the
instructions on the form but do not enter
the adjusted taxable income from line 3
of the original Form 8866. When
completing line 5 of the corrected Form
8866, do not include the interest due, if
any, from line 10 of the original Form
8866 that was included in your total tax
when Form 8866 was filed with your tax
return.
• If both the original and corrected
Forms 8866 show interest you owe, file
an amended income tax return following
the filing instructions, earlier, and the
amended return instructions for your tax
return.
• If both the original and corrected
Forms 8866 show interest to be
refunded to you, write “Amended” in the
top margin of the corrected Form 8866,
and file it separately following the filing
instructions, earlier.
• If your original Form 8866 shows
interest you owe and the corrected

Form 8866 shows interest to be
refunded to you, you must:
1. File an amended tax return
showing $0 interest from Form 8866
and
2. File the corrected Form 8866
separately (but do not write “Amended”
at the top of the form because this is the
first Form 8866 that you will file
separately for this recomputation year).
Follow the filing instructions, earlier, and
the amended return instructions for your
tax return.
• If the original Form 8866 shows
interest to be refunded to you and the
corrected Form 8866 shows interest you
owe, you must:
1. File the corrected Form 8866
separately (with “Amended” written at
the top) showing $0 interest to be
refunded and
2. File an amended income tax
return and attach a copy of the
corrected Form 8866. Follow the filing
instructions, earlier, and the amended
return instructions for your tax return.

Attachments

If you need more space, attach separate
sheets to the back of Form 8866. Put
your name and identifying number on
each sheet.

Specific Instructions
Recomputation Year

Fill in the recomputation year line at the
top of the form to show the tax year for
which this form is being filed. If you were
an owner of an interest in a
pass-through entity that has depreciated
one or more properties under the
income forecast method, enter your tax
year that ends with or includes the end
of the entity's recomputation year.

Name

Enter the name shown on your federal
income tax return for the recomputation
year. If you are an individual filing a joint
return, also enter your spouse's name
as shown on Form 1040.

Address

Enter your address only if you are filing
this form separately. Include the
apartment, suite, room, or other unit
number after the street address.

P.O. Box

Enter your box number instead of your
street address only if your post office
does not deliver mail to your home.
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Foreign Address

Enter the information in the following
order: city, province or state, and
country. Follow the country's practice for
entering the postal code. Please do not
abbreviate the country name.

Identifying Number

If you are an individual, enter your social
security number. Other filers must use
their EIN.

Recomputation year column

Enter the month and year for the
recomputation year listed at the top of
this form.

Columns (a) and (b)

Enter at the top of each column the
ending month and year for:
• Each tax year prior to the
recomputation year in which you
depreciated property under the income
forecast method to which this form
applies and
• Any other tax year affected by such
years.
Note. If there are more than 2 prior tax
years, attach additional Forms 8866 as
needed. On the additional Forms 8866,
enter your name, identifying number,
and tax year. Complete lines 1 through
8 (as applicable), but do not enter totals
in column (c). Enter totals only in
column (c) of the first Form 8866.

Line 1

Do not reduce taxable income or
increase a loss on line 1 by any
carryback of a net operating loss, net
section 1256 contracts loss, or capital
loss, except to the extent that carryback
resulted from or was adjusted by the
redetermination of depreciation under
the income forecast method for
look-back purposes.
Note. The 2-year carryback rule does
not apply to net operating losses arising
in the tax years ending after 2017. An
exception applies to farmers and
non-life insurance companies. See
section 172(b) as amended by P.L.
115-97, section 13302.

Line 2

In each column, show a net increase to
taxable income as a positive amount
and a net decrease as a negative
amount.
In figuring the net adjustment to be
entered in each column on line 2, be
sure to take into account any other
income and expense adjustments that

may result from the increase (or
decrease) to depreciation under the
income forecast method (for example,
for an individual, a change to adjusted
gross income may affect medical
expenses).
If there are no adjustments besides
the look-back adjustments, the sum of
all line 2 amounts should be zero and
reflected in column 2(c). If there are
additional adjustments that result from
the application of the look-back, leave
column 2(c) blank and reflect the
amounts in the schedule below as
described in item 3.
Include the following on an attached
schedule.
1. Identify each property
depreciated under the income forecast
method to which this form applies.
2. For each property, report in
columns for each prior year: (a) the
amount of depreciation previously
deducted based on estimated future
income and (b) the amount of
depreciation allowable for each prior
year based on actual income earned
before the end of the recomputation
year and estimated future income to be
earned after the recomputation year.
Total the columns for each prior year
and show the net adjustment to
depreciation.
3. Identify any other adjustments
that result from a change in depreciation
under the income forecast method and
show the amounts in the columns for the
affected years so that the net
adjustment shown in each column on
the attached schedule agrees with the
amounts shown on line 2.
An owner of an interest in a
pass-through entity is not required to
provide the detail listed in 1 and 2 with
respect to prior years. The entity should
provide the line 2 amounts with
Schedule K-1 or on a separate
statement for its recomputation year.
Note. Taxpayers reporting line 2
amounts from more than one
Schedule K-1 (or a similar statement)
must attach a schedule detailing by
entity the net change to depreciation
under the income forecast method.

Line 3

If line 3 results in a negative amount, it
represents a look-back net operating
loss (NOL). The adjustment in line 2
either created, increased, or decreased
the net operating loss. The change in
the amount of the net operating loss
would be carried back or forward to the

appropriate tax year and the
hypothetical tax would be recomputed
in the carryback/forward year. However,
the computation period for computing
interest on NOLs is different. See the
exceptions listed on lines 7 and 8
below.
Note. The 2-year carryback rule does
not apply to net operating losses arising
in tax years ending after 2017. An
exception applies to farmers and
non-life insurance companies. See
section 172(b) as amended by P.L.
115-97, section 13302.

Lines 4 and 5

Reduce the tax liability to be entered on
lines 4 and 5 by allowable credits (other
than refundable credits, for example,
the credit for taxes withheld on wages,
the earned income credit, the additional
child tax credit, the credit for federal tax
paid on fuels, etc.), but do not take into
account any credit carrybacks to the
prior year in computing the amount to
enter on lines 4 and 5 (except to the
extent of carrybacks that resulted from
or were adjusted by the redetermination
of depreciation for look-back purposes).
Include on lines 4 and 5 any taxes (such
as alternative minimum tax) required to
be taken into account in the
computation of your tax liability (as
originally reported or as redetermined).

Line 6

Pass-through entities. Multiply the
amount on line 2 by the applicable
regular tax rate for each prior year
shown in column (a) or (b). The
applicable regular tax rate is as follows.

1. Pass-through entities in which, at all
times during the year, more than 50% of
the interests in the entity are held by
individuals directly or through other
pass-through entities. The rates for tax
years beginning:
a. In 2000 or earlier
b. In 2001 . . . . . . .
c. In 2002 . . . . . .
d. In 2003 through
2012 . . . . . . . . . .
e. In 2013 through
2017 . . . . . . . . . .
f. In 2018 or later . .

. . . . .

39.6%
39.1%
38.6%

. . . . .

35.0%

. . . . .

39.6%
37.0%

. . . . .
. . . . .

. . . . .

2. All other pass-through entities not
included in 1 above:

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a. In 2017 or earlier . . . . .
b. In 2018 or later . . . . . .

35%
21%

Lines 7 and 8

For the increase or decrease in tax for
each prior year, interest due or to be
refunded must be computed at the
applicable interest rate and
compounded on a daily basis, generally
from the due date (not including
extensions) of the return for the prior
year until the earlier of:
• The due date (not including
extensions) of the return for the
recomputation year, or
• The date the return for the
recomputation year is filed and any
income tax due for that year has been
fully paid.

Exceptions
• If a net operating loss, capital loss,

net section 1256 contracts loss, or
credit carryback is being increased or
decreased as a result of the adjustment
made to net income due to refiguring
depreciation under the income forecast
method, the interest due or to be
refunded must be computed on the
increase or decrease in tax attributable
to the change to the carryback only from
the due date (not including extensions)
of the return for the prior year that
generated the carryback and not from
the due date of the return for the year in
which the carryback was absorbed. See
section 6611(f).
• In the case of a decrease in tax on
line 6, if a refund has been allowed for
any part of the income tax liability shown
on line 5 for any year as a result of a net
operating loss, capital loss, net section
1256 contracts loss, or credit carryback
to such year, and the amount of the
refund exceeds the amount on line 4,
interest is allowed on the amount of
such excess only until the due date (not
including extensions) of the return for
the year in which the carryback arose.
Note. If a different method of interest
computation must be used to produce
the correct result in your case, use that
method and attach an explanation of
how the interest was computed.

Applicable Interest Rates

The overpayment rate designated under
Section 6621 is used to calculate the
interest for both hypothetical
overpayments and underpayments. The
applicable interest rates are published
quarterly in revenue rulings in the

Internal Revenue Bulletin available at
IRS.gov.
However, for depreciation deducted
in tax years ending after August 5, 1997,
an interest rate is determined for each
interest accrual period. The interest
accrual period starts on the day after the
return due date (not including
extensions) for each prior tax year and
ends on the return due date for the
following tax year. The interest rate in
effect for the entire interest accrual
period is the overpayment rate
determined under section 6621(a)(1)
applicable on the first day of the interest
accrual period.
Even though the interest rates
change quarterly, for look-back
purposes the interest rate stays the
same for the accrual period which is
generally one year. The applicable
interest rates for non-corporate
taxpayers are shown in Table 1 (for
interest accrual periods beginning after
Jan. 1, 2008).
The applicable interest rates for
corporate taxpayers for the first $10,000
are shown in Table 2. The applicable
interest rates for corporate taxpayers for
amounts in excess of $10,000 are
shown in Table 3.

Line 9

Additional interest to be refunded for
periods after the due date of the return,
if any, will be computed by the IRS and
included in your refund. Report the
amount on line 9 (or the amount
refunded by the IRS if different) as
interest income on your income tax
return for the tax year in which it is
received or accrued.

Line 10

Corporations (other than S
corporations) may deduct this amount
(or the amount computed by the IRS if
different) as interest expense for the tax
year in which it is paid or incurred. For
individuals and other taxpayers, this
interest is not deductible.

Table 1
Interest Rates for Non-corporate
Taxpayers
From
1/1/08
4/1/08
7/1/08
10/1/08
1/1/09
4/1/09
1/1/11
4/1/11
10/1/11
1/1/12
1/1/13
1/1/16
4/1/16
1/1/17
4/1/18

Through
3/31/08
6/30/08
9/30/08
12/31/08
3/31/09
12/31/10
3/31/11
9/30/11
12/31/11
12/31/12
12/31/15
3/31/16
12/31/16
3/31/18
9/30/18

Rate
7%
6%
5%
6%
5%
4%
3%
4%
3%
3%
3%
3%
4%
4%
5%

Table
67
65
63
65
15
13
11
13
11
59
11
59
61
13
15

Page
621
619
617
619
569
567
565
567
565
613
565
613
615
567
569

Table 2
Interest Rates for Corporate
Increases or Decreases in Tax of
$10,000 or Less
From
1/1/08
4/1/08
7/1/08
10/1/08
1/1/09
4/1/09
1/1/11
4/1/11
10/1/11
1/1/12
1/1/13
1/1/16
4/1/16
1/1/17
4/1/18

Through
3/31/08
6/30/08
9/30/08
12/31/08
3/31/09
12/31/10
3/31/11
9/30/11
12/31/11
12/31/12
12/31/15
3/31/16
12/31/16
3/31/18
9/30/18

Rate
6%
5%
4%
5%
4%
3%
2%
3%
2%
2%
2%
2%
3%
3%
4%

Table Page
65
619
63
617
61
615
63
617
13
567
11
565
9
563
11
565
9
563
57
611
9
563
57
611
59
613
11
565
13
567

Table 3
Interest Rates for Corporate
Increases or Decreases in Tax
Exceeding $10,000
From

Through

1/1/08
4/1/08
7/1/08
10/1/08
1/1/09
4/1/09
1/1/11
4/1/11
10/1/11
4/1/16
1/1/17
4/1/18

3/31/08
6/30/08
9/30/08
12/31/08
3/31/09
12/31/10
3/31/11
9/30/11
3/31/16
12/31/16
3/31/18
9/30/18

Rate
4.5%
3.5%
2.5%
3.5%
2.5%
1.5%
0.5%
1.5%
0.5%
1.5%
1.5%
2.5%

Table Page
62
60
58
60
10
8
–
8
–
56
8
10

616
614
612
614
564
562
–
562
–
610
562
564

Privacy Act and Paperwork Reduction Act Notice. We ask for the
information on this form to carry out the
Internal Revenue laws of the United
States. We need it to ensure that you
are complying with these laws and to
figure and collect or refund the correct
amount of interest. Section 167(g)
provides special rules for computing
interest under the look-back method for
property depreciated under the income
-4-

forecast method. Sections 6001 and
6109 and their regulations require you
to provide this information, including
your identifying number, if this provision
applies to you. If you do not file Form
8866, do not provide the information we
ask for, or provide fraudulent
information, you may forfeit any refund
of interest otherwise owed to you and
be subject to other penalties.
You are not required to provide the
information requested on a form that is
subject to the Paperwork Reduction Act
unless the form displays a valid OMB
control number. Books or records
relating to a form or its instructions must
be retained as long as their contents
may become material in the
administration of any Internal Revenue
law. Generally, tax returns and return
information are confidential, as required
by section 6103. However, section 6103
sometimes permits or requires us to
disclose this information.
We may give the information to the
Department of Justice and to other
federal agencies, as provided by law.
We may give it to cities, states, the
District of Columbia, and U.S.
commonwealths or possessions to carry
out their tax laws. We may give it to
foreign governments because of tax
treaties they have with the United
States. We also may disclose this
information to federal and state
agencies to enforce federal nontax
criminal laws and to combat terrorism.
The time needed to complete and file
this form will vary depending on
individual circumstances. The estimated
burden for individual taxpayers filing this
form is approved under OMB control
number 1545-0074 and is included in
the estimates shown in the instructions
for their individual income tax return.
The estimated burden for all other
taxpayers who file this form is shown
below.
Recordkeeping . . . . . . . 7 hr., 39 min.
Learning about the law
or the form . . . . . . . . . 1 hr., 33 min.
Preparing, copying,
assembling, and
sending
the form to the IRS . . . 2 hr., 56 min.

If you have comments or suggestions
for making this form simpler, we would
be happy to hear from you. You can
send us comments from IRS.gov/
FormComments. Or you can send us

your comments to: Internal Revenue
Service; Tax Forms and Publications
Division: SE:W:CAR:MP:T;

1111 Constitution Ave.; NW; IR-6526;
Washington, DC 20224. Do not send

-5-

the tax form to this office. Instead, see
Filing Instructions, earlier.