What the New Business Interest Deduction Rules Mean for You

Financing large equipment purchases or carrying business debt just became more tax-efficient for many companies.

One of the updates in the One Big Beautiful Bill Act (OBBBA) revisits the business interest deduction cap, a rule that has caused headaches for capital-heavy businesses since 2022.

A Quick Recap of the Rules

Under the 2017 Tax Cuts and Jobs Act (TCJA), businesses faced a limit on the amount of interest expense they could deduct. The cap was set at 30% of Adjusted Taxable Income (ATI).

• From 2018–2021, ATI was based on earnings before interest, taxes, depreciation, and amortization (EBITDA).
• But starting in 2022, the calculation changed to EBIT, which excludes depreciation and amortization. That meant many businesses suddenly faced a smaller deduction cap, especially those with significant capital investments.

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What's Changing Now?

The OBBBA restores the EBITDA calculation starting in 2025. That means companies can once again add depreciation and amortization back into their ATI calculation. This often results in a higher deduction limit.

Who Benefits?

This update is especially helpful for businesses that have high levels of interest expense, make substantial investments in machinery, buildings, or other capital assets, or rely on debt financing to manage long receivables or inventory cycles.

Industries that may benefit the most include manufacturing, distribution and logistics, real estate, and capital-intensive businesses.

That said, not every business is affected. If your average gross receipts for the prior three years are less than $31 million (2025 threshold, indexed annually), you may be exempt from the cap. There are also additional qualifications for businesses organized as tax shelters.

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What Should You Be Doing?

If your business is subject to the cap, this is a good time to:

Most businesses that needed to make the RPTB election likely already have, but for new entities or those with changing capital needs, a yearly review is smart.

Debt is often a necessary tool for growth, and this update gives businesses more room to use it efficiently. If you were previously limited in deducting interest expense, the switch back to EBITDA could unlock meaningful tax savings.

As with many provisions in the new bill, the opportunity lies in understanding the fine print and acting strategically, especially if you're investing in growth or refinancing loans.