Starting in 2025, the One Big Beautiful Bill Act (OBBBA) introduces a permanent shift in how businesses can deduct their interest expenses. For many owners, this could mean bigger deductions, stronger cash flow, and new opportunities for tax planning.
This blog will walk you through:
The basics of business interest expense rules
Who is exempt from these limits
The major changes under OBBBA
Practical tax planning takeaways
Business Interest Deduction Basics
When you borrow money for your business—through loans, lines of credit, or financing arrangements—the interest you pay is usually deductible. But since 2017, the IRS has limited how much you can deduct.
Here’s how the cap has traditionally been calculated:
Your business can deduct interest up to the sum of:
Business interest income,
30% of Adjusted Taxable Income (ATI), and
Floor plan financing interest expense (primarily for vehicle dealers).
Any excess interest expense that doesn’t fit under this formula isn’t lost—it carries forward into future years.
What Counts as “Business Interest Expense”?
Included: Interest on debt tied to your trade or business.
Not included: Investment interest expense (a separate category under IRS rules).
These rules apply across entities: corporations, partnerships, LLCs, and S corporations. But as we’ll see, several businesses are completely exempt.
Businesses That Are Exempt
Not every business has to worry about the 30% ATI limit.
Exemption Threshold
For 2025, if your business has average annual gross receipts of $31 million or less (over the prior three years), you are fully exempt. This covers the vast majority of small and mid-sized businesses.
Other Exemptions
Service businesses run by employees
Electing real property trades or businesses (with longer depreciation schedules)
Electing farming businesses (also with slower depreciation)
Utilities that provide electricity, water, gas, or sewage services under regulated rates
👉 Tax planning note: Real property and farming businesses need to weigh the trade-off: electing exemption gives bigger interest deductions but slower depreciation. Sometimes Section 179 expensing can balance this out.
The Big Changes Under OBBBA (Starting 2025)
Here’s where business owners should pay attention:
1. Adjusted Taxable Income (ATI) Gets More Favorable
Previously, ATI was calculated after subtracting depreciation, amortization, and depletion. Starting in 2025, ATI will be calculated before these deductions, making it more like EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization).
This higher ATI figure means your deductible interest ceiling is higher—translating into larger allowable deductions for many businesses.
2. Expanded Floor Plan Financing
OBBBA also broadens the definition of “floor plan financing.” Starting in 2025, financing for trailers and campers designed for temporary living (fifth wheels, RVs, towable campers, etc.) now qualifies.
That’s a significant win for dealers and businesses in the recreational vehicle sector, who will enjoy greater interest deduction capacity.
How to Calculate the Deduction
Businesses subject to the limitation must use IRS Form 8990 (Limitation on Business Interest Expense Under Section 163(j)). This ensures consistency in how deductions are calculated and carried forward.
Key Takeaways for Business Owners
Bigger Deductions Ahead
Starting in 2025, ATI is EBITDA-like. That means larger deductions are available, especially for capital-intensive businesses.
Industry-Specific Wins
Trailer and camper businesses benefit directly from the expanded floor plan financing rules.
Many Businesses Still Exempt
With the $31M gross receipts threshold, most small businesses won’t face these limits at all.
Tax Planning Opportunities
For businesses above the threshold or those choosing special elections (real property, farming), it’s time to reassess strategies. The new rules may shift whether it makes sense to elect in or out.
Final Word
The OBBBA permanently eases restrictions on business interest expense deductions—good news for growth-minded businesses. Whether you’re a small business under the $31M threshold, a real estate investor considering an election, or a dealership financing trailers, these changes open the door to more deductions and stronger tax efficiency.
But as always, the devil is in the details. Work with a tax advisor to ensure you’re maximizing the benefits without leaving money on the table.