Bigger Deductions Ahead: OBBBA’s 2025 Update to Business Interest Limits

OBBBA business interest deduction rules are getting easier starting in 2025. The One Big Beautiful Bill Act (OBBBA) permanently installs more favorable rules for determining how much business interest expense can be deducted, making it simpler for businesses to plan ahead and increase allowable interest expense deductions.

The Basics: How Business Interest Deduction Limits Work

Under Internal Revenue Code § 163(j), the deduction for business interest expense is generally limited each year to the sum of:

• the taxpayer’s business interest income,
• 30% of adjusted taxable income (ATI), and
• any floor plan financing interest expense.

Any interest disallowed is carried forward to future tax years. These rules apply before passive loss, at-risk, and excess business loss limitations.

Who Is Subject to the Limitation?

The limitation applies to all businesses — sole proprietors, partnerships, LLCs, and corporations — unless an exception applies. For tax years beginning in 2025, businesses with average annual gross receipts of $31 million or less (over the prior three years) are fully exempt.+

Other exempt trades or businesses include:

• The trade or business of performing services as an employee
• An electing real property trade or business that agrees to depreciate certain real property assets over longer periods
• An electing farming business that agrees to depreciate certain farming property assets over longer periods
• Any trade or business that furnishes the sale of electrical energy, water, sewage disposal services, gas, or steam through a local distribution system, or transportation of gas or steam by pipeline, if the rates are established by a specified governing body

Tax planning tip: Real property and farming businesses must weigh the trade-off between immediate interest deductions and slower depreciation — although Section 179 expensing can offset some of that loss.

These exemptions are especially important for taxpayers evaluating how the OBBBA business interest deduction rules apply to their operations in 2025 and beyond.

Favorable OBBBA Business Interest Deduction Rules for 2025 and Beyond

The One Big Beautiful Bill Act (OBBBA) makes two major permanent changes beginning in 2025:

1. More favorable ATI calculation.The OBBBA business interest deduction rules increase allowable deductions by restoring the EBITDA-based ATI calculation and expanding floor plan financing definitions.
2. Expanded floor plan financing. The definition now includes financing for trailers and campers designed for temporary living quarters that can be towed or attached to motor vehicles. This change helps RV and trailer dealers deduct more interest. Note: OBBBA also clarifies that Section 163(j) applies without regard to whether interest is capitalized — meaning businesses can’t avoid the limitation simply by rolling interest costs into capitalized assets.

Businesses subject to Section 163(j) calculate their limit using IRS Form 8990 (Limitation on Business Interest Expense Under Section 163(j))

Why This Matters

Starting in 2025, OBBBA gives businesses a significant win — larger deductions and permanent clarity on how ATI is calculated. Companies in the camper and trailer sector also benefit from broader eligibility under the new floor plan definition.

Even with these improvements, owners should review whether they still fall under the Section 163(j) rules and adjust 2025 planning accordingly.

Understanding the OBBBA business interest deduction rules helps business owners accurately plan their 2025 interest expense deductions and take full advantage of the permanent relief.

Next Steps

• File Form 8990 if you expect interest limitations to apply.
• Review entity structure to see if you qualify for the $31 million gross-receipts exemption.
• Coordinate depreciation choices (Section 179 vs. bonus depreciation) for electing real estate or farming businesses.

Call to Action

🧾 Schedule a Free Tax Strategy Session to discuss how OBBBA impacts your 2025 interest deductions and capital structure.

Read related content!

• How the OBBBA Changes Depreciation and Bonus Rules
• Understanding the OBBBA’s New EBITDA Definition
• What Small Businesses Need to Know About 2025 Tax Updates