This bill repeals recent modifications to the calculation of adjusted taxable income, restoring previous standards for business interest expense deductions starting in 2026.
Ron Estes
Representative
KS-4
The Ensuring Better Interest Treatment and Deductibility (EBITDA) Act repeals recent modifications to the calculation of adjusted taxable income regarding business interest limitations. By removing these specific constraints, the bill aims to restore previous tax treatment standards for businesses starting in the 2026 tax year.
EBITDA Act Restores Business Interest Deductions: Tax Calculation Changes Set for 2026
The Ensuring Better Interest Treatment and Deductibility Act (EBITDA) reverses a technical shift in how the IRS calculates the limit on how much interest a business can deduct from its taxes. Starting in tax years after December 31, 2025, the bill repeals a specific provision from Section 163(j) of the tax code that was previously introduced by Public Law 119-21. Essentially, it moves the goalposts back to an older standard for determining 'adjusted taxable income,' which dictates the ceiling for interest expense write-offs.
The Math Behind the Money
To understand this, think of a local construction company that took out a massive loan to buy a fleet of excavators. Under current rules, the amount of interest they can deduct is capped based on a specific formula. This bill changes that formula by removing a recently added restriction. By reverting to the previous calculation method, businesses that carry significant debt—like manufacturers or tech startups—might find they have more breathing room to deduct their borrowing costs. It is a technical adjustment that changes the bottom line for any company that relies on financing to grow or maintain operations.
Who Wins and Who Adjusts
The primary beneficiaries are companies that found the newer, more restrictive calculation method expensive. If you are a small business owner who recently expanded using a line of credit, this change could lower your tax bill starting in 2026 compared to what it would have been under the current trajectory. However, the impact is not universal; it specifically targets those who were negatively affected by the changes in Public Law 119-21. For the average office worker, the impact is indirect, potentially influencing how much capital their employer has available for reinvestment or equipment upgrades.
Implementation and Timing
Because this change doesn't kick in until the 2026 tax year, businesses have a significant lead time to adjust their financial planning. There is no immediate paperwork shuffle for this year's tax season. The low level of vagueness in the bill means tax professionals will have a clear directive on how to revert these calculations. The challenge lies in the long-term planning for capital-intensive industries that make multi-year borrowing decisions based on what they expect their tax liability to look like several years down the road.