Authors
Pamela M. MacKenzie
Director, Boston
pmackenzie@goulstonstorrs.com+1 617 574 4106
Jesse Rubinstein
Director, New York
jrubinstein@goulstonstorrs.com+1 212 878 5142
Jill S. Fox
Senior Attorney, New York
jfox@goulstonstorrs.com+1 212 878 5149On July 4, 2025, the One Big Beautiful Bill Act (the “OBBB” ) was signed into law, introducing a broad package of policy reforms, funding reallocations, and regulatory changes set to reshape the nation’s infrastructure, climate strategy, and economic competitiveness for decades to come.
Goulston & Storrs is closely monitoring the OBBB and its implications for individuals and businesses across sectors. If you have any questions about how these changes may affect you or your business, please contact your Goulston & Storrs attorney.
The Return of EBITDA: Key Tax Implications of the OBBB Act
Among its many far-reaching provisions, the OBBB contains significant tax reforms that bring sweeping changes to the U.S. tax landscape. One of the most impactful for businesses across industries is the modification of Section 163(j), which governs the deductibility of business interest expenses.
Background on Section 163(j)
Section 163(j) of the Internal Revenue Code, originally established under the Tax Cuts and Jobs Act of 2017, limits business interest expense deductions to 30% of adjusted taxable income (“ATI”). Initially, the calculation of ATI included add-backs for depreciation and amortization, effectively allowing taxpayers to deduct interest based on earnings before interest, taxes, depreciation, and amortization (“EBITDA”). However, beginning in 2022, the rules became more restrictive, limiting deductions to 30% of earnings before interest and taxes (“EBIT”) only.
The OBBB's Key Change
The OBBB introduces a significant reversal to the Section 163(j) limitations. Starting with tax years that begin after December 31, 2024, the legislation brings back the EBITDA-based limitation that had previously been scaled back. Under this restored approach, taxpayers will calculate their interest deduction ceiling using adjusted taxable income without reduction for depreciation and amortization, effectively allowing for higher interest deductions than under the current EBIT-based system.
Impact on Business Operations
This change provides substantial relief to businesses, particularly those in capital-intensive industries such as manufacturing, real estate, and technology. By allowing depreciation and amortization to be added back when calculating ATI, companies will have access to higher thresholds for deducting business interest expenses. This is especially relevant given the current high interest rate environment, where many businesses have faced increased borrowing costs. This restored flexibility creates opportunities for businesses to reassess their debt arrangements and potentially pursue additional financing that was previously tax-inefficient under the stricter EBIT limitations.
Next Steps for Businesses
While the long-term effects of this legislation remain to be seen, the return to EBITDA-based calculations signals a more pro-business stance and offers companies greater flexibility in managing their capital structures. Businesses can model the impact of the revised deduction limits and assess whether refinancing, restructuring, or new investment strategies are now more viable.
For questions about how these changes may affect your business or to evaluate your current interest deduction position, please contact a member of our Tax Group.
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