I picked an AFR rate for my owner loan — but could the IRS still say it's really equity, and does section 163(j) limit my interest deduction?
I set my owner-loan interest inside the AFR safe-haven, so I assumed the interest question was settled. Then I read that even with a good rate the IRS can recharacterize the 'loan' as equity, and that section 163(j) can separately cap the interest deduction. My LLC has a running balance with no real note and no fixed maturity. How worried should I be about the debt-vs-equity issue, and does 163(j) actually hit a small business?
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