IRC §163(j) Interest Deduction Cap
What types of businesses are most impacted by the change tied to IRC §163(j)?
In 2017, the Tax Cut & Jobs Act added a 30% cap on the business interest deduction under IRC §163(j). Businesses can deduct interest of up to 30% of their adjusted taxable income (ATI). For post-2021 tax years, the definition of ATI changes to exclude depreciation, amortization and depletion. This means that the amount of tax-deductible interest will be lower. Industries that have large capital expenses (such as equipment, facilities and infrastructure), will feel the greatest impact — manufacturing, energy and transportation, for example. Carryforward of disallowed business interest should also be considered.
Client Impact
Tax Planning: Business Interest Deduction Limitation
In 2022, ATI is similar to EBIT (vs. EBITDA for pre-2022 tax years).
Topic Page
Business Interest Deduction Limit
Click Adjusted Taxable Income on the left.
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