H.R.1 modifies the rules for calculating the amount of interest paid on business loans. The result is for many businesses an increase in the amount of business loan interest that is deductible from taxable income.
Under current law, business interest is generally deductible to the extent it is less than 30 percent of adjusted gross income. The beneficial change contained in H.R.1 derives from an expansion of the definition of adjusted gross income (AGI).
Under current law, for purposes of the business interest deduction, AGI is calculated without regard to deductions allowed for depreciation, amortization, or depletion (EBIT—earnings before interest and taxes). The House provision would expand this by allowing the calculation to also include interest and taxes (EBIDTA—earnings before interest, taxes, depreciation, and amortization).
The provision applies to taxable years beginning after December 31, 2024.
Prospects: This provision is supported by virtually all Republican Senators, and therefore stands a very good chance of being included in the Senate version of the budget reconciliation bill and then also in the final House-Senate bill.
NAIFA Staff Contact: Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org