In 2025, manufacturers and other capital-intensive industries get a rare bit of good news from Washington. Thanks to a provision in the One Big Beautiful Bill Act (OBBBA), the limitation on business interest deductions is once again based on EBITDA—not EBIT. For these companies, that technical-sounding change can mean real tax savings and more flexibility to finance growth.
Here’s what’s changed, why it matters, and how manufacturers and others can benefit.
What Changed? From EBIT to EBITDA
Under prior tax rules, businesses could only deduct interest expenses up to 30% of EBIT—earnings before interest and taxes. That calculation excluded depreciation and amortization, which hit capital-intensive businesses especially hard given how much they invest in equipment and property.
The OBBBA provision reverses that, restoring the EBITDA limitation: 30% of earnings before interest, taxes, depreciation, and amortization.
In short: you now have more room to deduct interest on business loans used to finance equipment purchases and expansion.
Why It Matters for Manufacturers
If your business relies on machinery, warehouses, or production lines, you already know depreciation is a big part of your financial picture. Under the EBIT rule, all that depreciation reduced your eligible interest deduction by reducing adjusted taxable income.
Now that EBITDA is back, those same depreciation and amortization expenses no longer lower your deduction threshold—freeing up more of your interest expense to be written off. This change is especially timely given the reinstatement of 100% bonus depreciation which would have subjected you to bigger reductions in interest deductions.
This update is especially valuable if:
- You’ve financed new equipment or upgrades recently
- You’ve delayed capital investments because of tax limitations
- Your company is growing and using debt to expand operations
Real-Life Example: ABC Manufacturing
Let’s walk through an example:
ABC Manufacturing financed a $3 million expansion to automate part of its production process. That came with:
- Large depreciation from new machinery
- Significant interest payments on a 5-year loan
Their 2025 financials show:
- EBITDA: $2,000,000
- EBIT: $1,200,000
- Interest Expense: $600,000
Under the EBIT rule:
30% of $1,200,000 = $360,000 deductible
$240,000 is not deductible this year
Under the EBITDA rule (now in effect):
30% of $2,000,000 = $600,000 deductible
Full deduction—no disallowed interest
That extra $240,000 deduction could translate into tens of thousands in tax savings and improved year-end cash flow.
What Should Manufacturers Do Now?
If you’re in the manufacturing space or rely on financing for growth, here are three smart next steps:
1. Review Your Financing Strategy
Now that the deduction is more generous, it may make sense to revisit capital projects that you paused or downscaled.
2. Update 2025 Tax Projections
Talk to your CPA to re-run your forecast based on EBITDA and factor in higher deductible interest.
3. Time Equipment Purchases Strategically
If you’re planning to finance new equipment, 2025 may be the best time to move forward from a tax perspective.
A Boost for Growth
Manufacturing is all about investing in the right tools, systems, and people to move forward. Tax changes like this one—while easy to overlook—can have a meaningful impact on those decisions.
The reinstated EBITDA rule gives you more control over the timing of the deduction of interest expense, better alignment with capital-heavy business models, and the opportunity to optimize your cash flow in 2025 and beyond.
Key Takeaway
The EBITDA-based deduction limit is back, and for manufacturers, that’s great news. If your business finances equipment or property, this rule gives you more room to deduct interest—freeing up cash to reinvest in your operations.
Want help calculating the impact on your business? Reach out to your CPA or tax advisor to explore how this change fits into your 2025 tax strategy. Contact us today!
