The IRS has updated its guidance on the business interest expense deduction to reflect changes and clarifications made by the One Big Beautiful Bill Act (OBBBA). The revised FAQs address the section 163(j) rules following changes made by the 2017 Tax Cuts and Jobs Act and OBBBA and remove outdated CARES Act guidance.

Here’s what you need to know.

What is the business interest expense deduction?

Unlike most personal interest, business interest may be deductible. However, section 163(j) generally limits a taxpayer's deduction for business interest expense to the total of business interest income, 30% of adjusted taxable income (ATI), and floor plan financing interest expense (interest on secured debt used to finance motor vehicles held for sale or lease).

Does it apply to everyone?

There are some exceptions, including for certain small businesses. A business generally qualifies for the small-business exemption if it is not a tax shelter and satisfies the section 448(c) gross receipts test. For 2026, the inflation-adjusted gross receipts threshold is $32 million, up from $31 million for 2025 and $30 million for 2024 (the test generally looks to average annual gross receipts for the preceding three years).

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Certain businesses also fall outside the limitation, including the trade or business of performing services as an employee, certain regulated utilities, and qualifying real property and farming businesses that elect to be treated as excepted.

Wouldn’t I want to be excepted?

There’s a trade-off. An electing real property trade or business generally must depreciate nonresidential real property,........

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