Business financing
The business-interest limitation again uses an EBITDA-style calculation
For tax years beginning after 2024, depreciation, amortization, and depletion are again added back when calculating adjusted taxable income for the Section 163(j) limitation.
The change may increase the amount of business interest currently deductible for leveraged businesses, but it does not eliminate the limitation. Small-business exceptions, real-property elections, carryforwards, partnerships, and international items still require separate analysis.
The 30% framework remains
When Section 163(j) applies, deductible business interest is generally limited to business interest income plus 30% of adjusted taxable income plus floor-plan financing interest.
Depreciation is added back again
For tax years beginning after December 31, 2024, deductions for depreciation, amortization, and depletion are added back in computing adjusted taxable income. This can increase the limitation compared with the 2022–2024 calculation.
Exceptions and elections still matter
Certain small businesses meeting the gross-receipts test may be exempt. Real-property and farming businesses may elect excepted-trade-or-business treatment, but that election can affect depreciation methods and should not be made casually.
Carryforwards need entity-level tracking
Disallowed interest may carry forward, but partnership and S corporation rules differ. A complete review should reconcile current interest, prior carryforwards, ownership changes, and the entity’s fixed-asset elections.
Recalculate the limitation with current-year depreciation and financing data before year-end. A change in adjusted taxable income can affect deductions, estimated taxes, and the value of prior interest carryforwards.
Apply the guidance to your facts
Discuss the accounting and tax decisions behind the form.
We begin with the records, entity structure, timing, and decisions that apply to your situation.
Schedule a complimentary callThis article provides general educational information and is not individualized accounting, legal, investment, or tax advice. Tax rules and forms change; confirm the current requirements for your facts before acting.