Undo Recent Business Interest Change

Full Title:
Ensuring Better Interest Treatment and Deductibility Act (EBITDA)

Summary#

This bill would change one small part of the tax law that limits how much business interest expense companies can deduct. It removes a modification that Congress added earlier (by Public Law 119-21) to the definition of “adjusted taxable income,” the number used to calculate the interest deduction limit. The change would apply for taxable years starting after December 31, 2025.

  • Main change: strikes the modification made by Public Law 119-21 to the definition of adjusted taxable income used in the Section 163(j) business interest limitation.
  • Who is affected: businesses that claim deductions for interest expense (corporations, partnerships, sole proprietors and other pass-through entities).
  • Timing: applies to tax years beginning after Dec. 31, 2025.
  • What is unclear: the bill text does not show the content of the clause being removed, so the bill by itself does not state exactly how the interest-deduction calculation will differ in dollar terms.

What it means for you#

  • Businesses with interest costs: This could change how much interest you may deduct on your federal tax return. The exact effect depends on the content of the earlier modification that this bill removes.
  • Pass-through owners and partnerships: If your business’s ability to deduct interest changes, your taxable income and individual tax liability could change too.
  • Tax preparers and accountants: You may need to change tax calculations and filing positions for affected tax years starting in 2026.
  • Lenders and corporate finance teams: Changes to interest deductibility can affect after-tax borrowing costs and financing decisions.
  • Taxpayers generally / government services: Any change that raises or lowers corporate tax collections could affect federal revenue, but this bill does not itself include a revenue estimate.

If you want to know the precise dollar effect for a given business, compare the current Section 163(j) definition of “adjusted taxable income” (including the modification made by Public Law 119-21) with the version that will apply if this bill becomes law.

Expenses#

No publicly available information.

  • The bill text does not include a fiscal estimate or cost analysis.
  • Removing the modification could increase or decrease federal tax revenue depending on whether it raises or lowers deductible interest, but no estimate is provided here.
  • There may be compliance costs for businesses and tax preparers to change calculations for affected tax years; no cost estimate is provided.

Proponents' View#

A possible argument in favor of the bill, based on the text and its short title, is:

  • The bill appears intended to revert the interest-deduction calculation back to the prior definition of adjusted taxable income. Supporters may argue this restores a treatment aligned with EBITDA-style measures (earnings before interest, taxes, depreciation, and amortization), which could let firms deduct more interest and improve business cash flow.
  • Supporters may say the change simplifies or stabilizes tax treatment for affected businesses by undoing a recent modification.
  • The change may be presented as helping capital investment or lowering borrowing costs for some companies, depending on how the removed modification affected deductions.

Opponents' View#

Possible concerns or downsides, based only on the bill’s design and what it changes:

  • One concern is uncertainty: the bill removes a specific change made by earlier law but does not restate that language, so taxpayers must compare statutes to see the net effect.
  • The bill may reduce federal revenue if it increases allowable interest deductions; no revenue estimate is provided.
  • The change could favor highly leveraged businesses (those that borrow more) by increasing their allowable deductions, which may be seen as inequitable across industries or firm sizes.
  • Changing the deduction rule can create transitional complexity for tax compliance and planning for businesses and their advisers.
  • It is unclear how the change interacts with other limits, exceptions, or anti-abuse rules in the tax code without further guidance or a fiscal analysis.