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Business Interest Deduction

A business interest deduction is a tax provision allowing businesses to deduct interest paid or accrued on debt related to their operations, such as loans for equipment, vehicles, or business expansion.

LIMITATIONS

The Tax Code limits corporations’ business interest expensing to any business interest income plus 30% of the business’s adjusted taxable income (ATI). Generally, this limit doesn’t apply to companies with average annual gross receipts for the prior three taxable years below a certain threshold ($32 million for 2026). The One Big Beautiful Bill Act (OBBBA) reinstates a more favorable business interest expense deduction by allowing businesses to add back depreciation, depletion, and amortization to their ATI calculation, thereby increasing the amount of deductible interest. The change was effective starting in 2025.

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Business Deductions

OBBBA makes permanent the deduction for qualified business income (QBI) under Section 199A of the Internal Revenue Code as enacted initially by the Tax Cuts and Jobs Act (TCJA) — generally equal to 20% of a non-corporate taxpayer’s aggregate QBI, subject to certain adjustments. A new minimum deduction of $400 per year, has been added for any noncorporate taxpayer whose aggregate QBI from all qualified trade or business activities in which the taxpayer materially participates exceeds $1,000.

PASS-THROUGH ENTITY TAX (PTET) DEDUCTION

Since the TCJA capped SALT deductions for individuals at $10,000, many states adopted PTET workarounds, which allowed pass-through entities to pay state income taxes at the entity level, rather than individual owners paying at the personal level, effectively reducing the pass-through entity’s income. Under OBBBA, the PTET deduction essentially remains the same as before.