Tax insight

OBBBA modifies limits on deductions for business interest and corporate charitable contributions

Insight
5 minute read
September 03, 2025

What happened?

The One Big Beautiful Bill Act (Act), enacted on July 4, permanently extends the depreciation, amortization, or depletion (DAD) addback for the business interest expense limitation under Section 163(j). The Act also introduces a new ordering rule under Section 163(j)(10), generally requiring taxpayers to compute and apply the Section 163(j) limitation before any interest capitalization provisions. Another significant provision of the Act that is expected to affect all businesses operating in corporate form is a new 1% floor limitation on the deduction a corporation can claim for charitable contributions under Section 170.

See our Tax Insight, President Trump signs H.R. 1, the “One Big Beautiful Bill Act” for an overview of the tax provisions included in the Act and our Accounting for US reform In Depth for an overview of the financial reporting considerations.

Why is it relevant?

The Act’s permanent extension of the DAD addback can provide significant tax benefits for taxpayers across all industries, especially for those with interest expense deductions limited since 2022 when the DAD addback was removed. However, for tax years beginning after 2025, certain elective interest capitalization planning implemented by taxpayers may be constrained by a newly introduced ordering rule. Additionally, the new 1% floor limitation on corporate charitable contribution deductions may lead to a permanent disallowance of a portion of a corporation’s charitable contributions.

Action to consider

Restoration of the DAD addback under Section 163(j) is a welcome relief for many taxpayers, positively impacting their borrowing capacity, cash flow, and capital investments. However, taxpayers should consider downstream effects, such as impacts on corporate alternative minimum tax (CAMT), the base erosion and anti-abuse tax (BEAT), state income tax conformity, historical interest capitalization planning, and other related implications, including how the effects may impact a company’s financial reporting. Taxpayers also should carefully evaluate the frequency, timing, and amount of their charitable contributions to mitigate the potential permanent disallowance.