163(j) Interest Limitations Under The One Big Beautiful Bill

On July 4, 2025, President Trump signed the One Big Beautiful Bill into law. The legislation makes far-reaching changes to the federal tax code and other parts of the government. The bill cuts certain taxes, changes funding for a number of federal programs, raises the debt ceiling by $5 trillion, and extends many of the provisions originally introduced in the 2017 Tax Cuts and Jobs Act (TCJA).

163(j) Interest Limitations

Businesses with more than $31 million (adjusted for inflation) in average annual gross receipts are subject to a limitation on their interest deductions under Section 163(j) of the Internal Revenue Code. Prior to enactment of The One Big Beautiful Bill, interest was only deductible to the extent of interest income plus floor plan interest plus 30% of adjusted taxable income. Adjusted taxable income was taxable income without including interest income, interest expense, net operating losses, QBI deduction, and any gain or loss that is not properly allocable to a trade or business. Interest expense in excess of the limitation carries over to become part of the interest calculation for the following year.

The One Big Beautiful Bill liberalizes the calculation of the limitation. For most taxpayers, the biggest change is that depreciation, amortization, and depletion are no longer included in the calculation of adjusted taxable income. Many taxpayers have significant deductions for depreciation, amortization, and depletion, especially with the reinstatement of 100% bonus depreciation. This change will significantly increase the interest deduction for some businesses.

The other change from The One Big Beautiful Bill is that floor plan interest now includes financing for floor models of trailers and campers designed to be towed by or affixed to a motor vehicle. This can be a significant change for camper or trailer dealerships.

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With major changes to tax rules, both individuals and business owners are encouraged to revisit tax strategies. A proactive approach will be essential to capture benefits, manage risk, and stay compliant as the new provisions take effect. If you have questions about the information outlined above, or need assistance with another tax issue, WhippleWood CPAs can help. For additional information call 303-989-7600 or click here to contact us. We look forward to speaking with you soon.