What updates were made to the calculation of business interest expense deduction limitation under Section 163(j) under the OBBBA starting in 2025?
Change to calculation of Adjusted Taxable Income
Under current law (tax years beginning in 2022–2024), the adjusted taxable income (ATI) calculation excludes depreciation, depletion, and amortization (DDA) — resulting in a tighter limitation base.
The OBBBA reverts this change to pre-2022 rules, restoring the DDA add−backs in the ATI calculation (i.e., returning to an EBITDA basis), effective for tax years beginning after December 31, 2024. — This restoration increases the ATI base and thus expands the deductible business interest allowance.
The OBBBA also excludes certain international tax items from the updated ATI calculation.
Expands exempt floor plan financing interest to include trailers and campers.
Clarifies how partnerships and S corporations allocate disallowed interest to owners.
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