o The changes under the OB3 (as to § 199A) are effective for tax years beginning after December 31, 2025 — meaning the 2025 tax year is the last under the old system, and 2026 forward will reflect the permanence and new rules. Refer to IRS information: - Qualified Business Income Deduction - Qualified Business Income Deduction FAQs Limitation on Deductibility of Business Interest: The deduction, originally set to expire after 2025 under the 2017 Tax Cuts and Jobs Act, is now permanent under OB3. The Act made significant changes to the limitation on the deductibility of business interest under Internal Revenue Code Section 163(j), primarily by altering the calculation of Adjusted Taxable Income (ATI). The key changes brought by the OB3 regarding the business interest deduction: 1. Reinstatement of the "EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)" Calculation for ATI (Adjusted Taxable Income) (Effective for tax years beginning after December 31, 2024): The permanent reinstatement of the ability to add back Depreciation, Amortization, and Depletion (DDA) when calculating ATI. The original 2017 Tax Cuts and Jobs Act (TCJA) allowed this DDA addback through 2021 (an EBITDA-based approach), but it was scheduled to expire, making the calculation an "EBIT"- based approach (Earnings Before Interest and Taxes) starting in 2022. By bringing the DDA addback back, the OB3 effectively returns the ATI calculation to a tax basis EBITDA model. Since ATI is the base against which the 30 percent limitation is applied, increasing the ATI generally increases the amount of business interest a business can deduct. This is especially helpful for capital-intensive businesses with significant depreciation or amortization deductions. 50 percent of ATI now. 2. New Rules for Capitalized Interest (Effective for tax years beginning after December 31, 2025): The OB3 introduces a new rule that generally mandates the Section 163(j) limitation is applied before any elective interest capitalization (such as under Section 263A or 263(g)). This change is generally unfavorable as it limits a previous planning opportunity where taxpayers could capitalize business interest to inventory or other property, which effectively allowed the interest to bypass the 30 percent deduction limitation. 3. Exclusion of Certain Foreign Income from ATI (Effective for tax years beginning after December 31, 2025): The OBBBA generally excludes certain international tax items, such as Subpart F income, Net CFC Tested Income (NCTI, formerly GILTI), and the Section 78 gross-up amount, from the calculation of ATI. This may be unfavorable for multinational corporations that previously relied on including these foreign income components to boost their ATI, as their deductible interest may now be lowered.
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