Business Interest Deduction Rules Beginning 2025

Here’s good news beginning in 2025. The One Big Beautiful Bill Act (OBBBA) permanently eases the rules that limit the deduction for business interest expense.

Background

The deduction for business interest expense is generally limited to the sum of

• business interest income,

• 30 percent of adjusted taxable income (ATI), and

• floor plan financing interest expense.

You carry disallowed business interest forward to future years. While these rules remain in place, the OBBBA makes two key changes that expand deductions.

OBBBA Improvements (Effective 2025)

1. More generous ATI calculation. ATI will now be determined before depreciation, amortization, or depletion. This EBITDA-style approach boosts ATI, increasing allowable deductions.

2. Expanded floor plan financing. The definition now covers financing for trailers and campers designed as temporary living quarters. Businesses in the recreational vehicle and camper industries may especially benefit.

Exemptions Remain

Many businesses are exempt from these rules, including those with average annual gross receipts of $31 million or less (for 2025). Real property and farming businesses can also elect out, though this choice trades faster interest deductions for slower depreciation. Your next step? Check out our Proactive Tax Strategy & Planning for Business Owners. While you're there, take the 2-minute Tax Strategy Assessment and get some free tax strategy ideas.

We provide these articles as general information and not individualized tax advice.  They do not constitute a client relationship with you, and any information provided here should be applied at your own risk.