Good News for 2025: Business Interest Deductions Just Got Easier
Beginning with tax year 2025, the One Big Beautiful Bill Act (OBBBA) ushers in permanent, business-friendly updates to how companies calculate and deduct business interest expenses. These new provisions are a win for many small and midsize businesses, offering expanded deductions, simpler calculations, and better opportunities for strategic tax planning.
At Pantana CPA, we’re helping clients navigate these changes so they can maximize every tax-saving opportunity the new law provides.
Understanding the Business Interest Deduction Limitation
The IRS limits how much business interest expense can be deducted each year. Under prior law, the deduction was capped at the sum of:
- Business interest income,
- 30% of adjusted taxable income (ATI), and
- Floor plan financing interest expense.
Any excess business interest expense not deductible in a given year had to be carried forward to future tax years.
Beginning in 2025, the OBBBA permanently adjusts these rules—broadening the definition of ATI and expanding what qualifies as floor plan financing.
Key Changes Under the OBBBA
1. ATI Now Uses an EBITDA-Based Formula
Before 2025, ATI was reduced by deductions for depreciation, amortization, and depletion, which lowered the amount available for the interest deduction.
Under the OBBBA, ATI will now be calculated before these deductions—essentially aligning it with the accounting concept of EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization).
What this means for your business:
A higher ATI equals a larger allowable business interest deduction, which can significantly reduce taxable income and improve after-tax cash flow.
2. Expanded Definition of Floor Plan Financing
Starting in 2025, the OBBBA expands floor plan financing to include trailers and campers designed for temporary living or recreational use.
Who benefits:
Businesses that sell or finance these types of vehicles—such as trailer dealerships, RV distributors, and related industries—may now deduct more of their financing costs.
Who’s Exempt From the Business Interest Limits?
Not every business is subject to these rules. For tax years beginning in 2025, companies with average annual gross receipts under $31 million (over the prior three years) are exempt from the business interest limitation.
Other exemptions include:
- Real property trades or businesses that elect longer depreciation periods,
- Farming businesses making a similar election, and
- Public utility businesses that provide regulated services such as water, gas, or electricity.
Tax planning insight: If you operate a real estate or farming business, it’s essential to evaluate the trade-off between electing out of the limitation (for more interest deductions) and accepting slower depreciation. With the right strategy, you may offset slower depreciation using Section 179 expensing for qualifying property.
Practical Steps: Calculating and Reporting
Businesses subject to these rules must calculate their deductible interest using IRS Form 8990, Limitation on Business Interest Expense Under Section 163(j).
At Pantana CPA, our tax professionals can help you:
- Determine whether your business qualifies for an exemption,
- Recalculate your 2025 business interest limitation using the new EBITDA-based ATI,
- Assess the impact on your overall tax position, and
- Implement strategies to maximize your interest deductions.
Why These Changes Matter
The OBBBA’s permanent revisions simplify compliance and deliver real tax benefits:
- Higher deductions due to the EBITDA adjustment,
- Broader eligibility for floor plan financing deductions, and
- Continued protection for smaller businesses through expanded exemptions.
For many taxpayers, these updates mean lower taxable income, better cash flow, and more strategic flexibility when managing financing decisions.
Partner With Pantana CPA for 2025 Tax Planning
The 2025 tax season will be the first to reflect these important OBBBA changes, and proactive planning is key to taking full advantage.
At Pantana CPA, we specialize in helping businesses navigate complex tax reforms with clarity and confidence. Our experienced CPA’s provide guidance to ensure your financial and tax strategies align with the newest federal provisions.
👉 [Schedule a consultation today] to discuss how the OBBBA’s new rules could enhance your business deductions and support smarter, more efficient tax planning for 2025 and beyond.
