Section 163(j) Is EBITDA-Based Again: What It Means for 2026 Interest Deductions

For leveraged businesses, the Section 163(j) limitation is a planning number, not a filing footnote. An EBITDA-based adjusted taxable income calculation can materially change the deductible-interest limit, carryforwards, tax provision, and covenant discussion.

Build the calculation visibly

Start with taxable income before interest, then separately identify business interest expense, depreciation, amortization, and other adjustments required by the applicable tax rules. Apply the limitation to the documented adjusted taxable income and track any disallowed interest as a carryforward.

Model the business consequence

Compare the result with the prior EBIT-based approach. The delta is not only a tax deduction. It can change projected cash tax, deferred tax balances, and the timing of investment decisions. Keep the supporting schedules and assumptions with the workpaper.

Use the workbooks

Download the Section 163(j) calculator to structure the analysis, and use the OBBBA multi-client tracker to coordinate work across a firm. Review current IRS guidance and professional advice before filing.