This is the fourth installment of our five-part series on the Budget Reconciliation Law—often called “One Big Beautiful Bill.” Our goal is to break it down and spotlight the key elements that matter most to business owners, helping you stay informed and empowered to drive growth.

The One Big Beautiful Bill Act (OBBBA), provides substantial relief for businesses by reversing a provision created in the Tax Cuts and Jobs Act’s (TCJA) during President Trump’s first Administration. The interest expense limitation rules under Internal Revenue Code § 163(j) provision were permanently changed to restore the Earnings Before Interest Deductions and Amortization (EBITDA)-based calculation—allowing companies to once again add back depreciation, amortization, and depletion when calculating adjusted taxable income (ATI). This expansion of the deductible base will be particularly beneficial for capital-intensive and leveraged firms across manufacturing, real estate, infrastructure, and other sectors that rely heavily on borrowed capital.

The TCJA, passed in 2017, shifted the ATI definition from an EBITDA measure to a narrower EBIT base that excluded depreciation and amortization, resulting in many firms seeing their deductible interest shrink dramatically. This raised effective borrowing costs, restricted cash flow, and reduced the appeal of debt-financed expansion. The new law reverses those effects by reinstating the broader EBITDA definition and, crucially, making it permanent beginning in tax years after December 31, 2024.

The law also clarifies coordination rules with interest capitalization provisions, ensuring that taxpayers cannot sidestep § 163(j) limitations through capitalization. Disallowed interest carried forward will not later be reclassified as capitalizable interest. These reforms take effect for tax years beginning after December 31, 2024, and are not retroactive to the stricter 2022–2024 period.

Businesses with carryforwards of disallowed interest from those years will, however, benefit from an expanded ATI base moving forward, allowing them to more quickly utilize prior-year disallowances. Companies should also note that state conformity will vary: rolling-conformity states such as New York will adopt the new EBITDA standard automatically, while static-conformity states (IA, CA, FL, NC, WI) will need to pass legislation to align with federal rules.

Overall, the restored EBITDA framework significantly reduces the cost of leverage, improves liquidity, and encourages new capital investment. By broadening the deductible interest base, OBBBA lowers the after-tax cost of borrowing and provides measurable cash-flow relief to U.S. businesses. The change is expected to spur growth, particularly in capital-intensive industries and among small and mid-sized enterprises that depend on access to debt markets. For multinational companies, the post-2025 exclusion of certain foreign income elements will require careful modeling to avoid overstating ATI or over-deducting interest.

Businesses should consider modeling 2025 tax liabilities early to measure cash-flow improvements under the new rule, reassess their capital structures to determine whether new debt-financed investments are now more viable, and plan the use of carryforward balances strategically to maximize benefit. Companies should also confirm their home state’s conformity with the new law to avoid mismatches between federal and state reporting.

By permanently restoring the EBITDA standard, Congress has effectively reopened a vital financing channel for small, mid-sized, and capital-intensive U.S. businesses. The objective is enhanced liquidity, renewed investment activity, and a lower overall tax burden—strengthening domestic competitiveness while maintaining safeguards against excessive cross-border tax arbitrage.