IRS issues new FAQs on business interest deduction after OBBBA tax reforms
The IRS released updated frequently-asked-questions guidance that incorporates changes from the One Big Beautiful Bill Act and eliminates outdated CARES Act rules.
The Internal Revenue Service has published a new fact sheet that supersedes the December 2025 FAQs, aligning the business interest expense deduction rules with the One Big Beautiful Bill Act and removing obsolete CARES Act language. Section 163(j) continues to cap deductions at the sum of business interest income, 30 percent of adjusted taxable income (ATI) and floor-plan financing interest, but the ATI formula now adds back depreciation, amortization and depletion for tax years after 2024, effectively restoring an EBITDA-type measure.
Small businesses may qualify for an exemption if average gross receipts over the prior three years are below $32 million in 2026, up from $31 million in 2025. The Act also broadens the definition of motor vehicles for floor-plan financing to cover trailers and campers designed for temporary living quarters. Interest capitalized under sections 263(g) and 263A(f) remains excluded from the limitation, while other interest is subject to it.
Additional provisions affect U.S. shareholders of controlled foreign corporations by excluding certain CFC income items from ATI calculations beginning after 2025. The IRS warns that the FAQs are informal guidance and may not be relied upon in disputes, though reasonable-cause penalty relief is available for good-faith reliance.
Why it matters
Businesses need the updated rules to correctly calculate deductible interest and avoid penalties under the new tax framework.
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