Section 163(j) Interest Limitation Calculator 2026 β EBITDA ATI (OBBBA)
Calculate the Section 163(j) business interest deduction limit. Uses restored EBITDA-based ATI per OBBBA. Shows allowed, disallowed, and carryforward amounts.
$
$
Wages, COGS, rent, utilities, etc. $
Book or tax depreciation for the year $
Intangible amortization, Β§197, etc. $
Total interest paid on business debt $
Disallowed interest from prior years %
21% for C-corps; use marginal rate for pass-throughs $0
Allowed Interest Deduction
$0
Disallowed (Carryforward)
$0
Adjusted Taxable Income (ATI)
$0
30% ATI Limit
Section 163(j) Calculation (EBITDA-Based ATI per OBBBA)
How the Section 163(j) Calculator Works
Enter your business revenue, operating expenses (excluding depreciation, amortization, and interest), then separately enter depreciation, amortization, and your total interest expense. The calculator computes your EBITDA-based ATI and determines how much interest is deductible.
The 163(j) Formula (OBBBA EBITDA Method)
EBITDA = Revenue − Operating Expenses (excl. D&A & interest)
ATI = EBITDA (per OBBBA β depreciation & amortization added back)
163(j) Limit = ATI × 30%
Allowed Interest = min(Interest Expense, Limit)
Disallowed Interest = max(0, Interest − Limit) → carries forward indefinitely
Total deductible this year = Allowed + min(Carryforward, Limit − Current Interest)
ATI = EBITDA (per OBBBA β depreciation & amortization added back)
163(j) Limit = ATI × 30%
Allowed Interest = min(Interest Expense, Limit)
Disallowed Interest = max(0, Interest − Limit) → carries forward indefinitely
Total deductible this year = Allowed + min(Carryforward, Limit − Current Interest)
Example
Business with $5M revenue, $3M opex, $200K depreciation, $50K amortization, $600K interest, 21% tax rate:
EBITDA = $5,000,000 − $3,000,000 = $2,000,000
ATI (EBITDA) = $2,000,000
30% Limit = $600,000
Allowed Interest = min($600,000, $600,000) = $600,000 (fully deductible)
Under EBIT (pre-OBBBA): ATI = $1,750,000, limit = $525,000 → $75,000 disallowed
EBITDA = $5,000,000 − $3,000,000 = $2,000,000
ATI (EBITDA) = $2,000,000
30% Limit = $600,000
Allowed Interest = min($600,000, $600,000) = $600,000 (fully deductible)
Under EBIT (pre-OBBBA): ATI = $1,750,000, limit = $525,000 → $75,000 disallowed
Extended
EBIT vs EBITDA ATI Comparison
Compare allowable interest deduction under EBIT (pre-OBBBA) vs EBITDA (OBBBA-restored) to quantify the law change impact
The OBBBA restored the EBITDA-based ATI. This table shows how your deductible interest and tax savings change under EBIT (pre-OBBBA 2022-2025 rules) vs EBITDA (OBBBA-restored rules) at various interest expense levels.
EBIT vs EBITDA Impact at Various Interest Expense Levels
| Interest Expense | EBIT ATI Limit (30%) | EBIT Allowed | EBITDA ATI Limit (30%) | EBITDA Allowed | OBBBA Benefit |
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Frequently Asked Questions
What is the Section 163(j) interest deduction limitation?
Section 163(j) limits the business interest expense deduction to 30% of Adjusted Taxable Income (ATI). Any interest expense that exceeds this limit is disallowed for the current year but carries forward indefinitely to future tax years when there may be sufficient ATI to absorb it.
What changed with the OBBBA regarding Section 163(j)?
The One Big Beautiful Budget Act (OBBBA) restored the EBITDA-based ATI calculation. From 2018 through 2021, ATI was computed like EBITDA (adding back depreciation and amortization). Starting in 2022, the law had switched to EBIT (no add-back for D&A), which made the limitation more restrictive. The OBBBA reversed this change, making ATI equal to EBITDA again, which generally results in a higher ATI and thus a larger allowable interest deduction.
Which businesses are exempt from Section 163(j)?
Small businesses with average annual gross receipts of $31 million or less (2026 inflation-adjusted threshold) are exempt from the Section 163(j) limitation. Also exempt are certain real property trades or businesses that elect out, farming businesses that elect out, and regulated utilities.
What happens to disallowed interest expense?
Disallowed interest expense under Section 163(j) carries forward indefinitely as a "disallowed business interest expense carryforward." In future years, you can deduct the carryforward to the extent you have excess capacity (i.e., 30% of ATI exceeds your current year interest expense). There is no limit on the number of years you can carry the amount forward.
How does Section 163(j) affect pass-through entities?
For partnerships and S-corporations, the Section 163(j) limitation is applied at the entity level, not at the partner or shareholder level. The entity computes its ATI and 30% limit, allows deductible interest, and any disallowed amount creates a partner- or shareholder-level carryforward. Each owner receives their share of both deductible and disallowed interest on their K-1.