Maximizing bonus depreciation under One Big Beautiful Bill | Viewpoint

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In the first four installments of this series, my colleagues explored how the One Big Beautiful Bill reshapes individual tax planning, the interplay between SALT and PTET, and how businesses can leverage accelerated expensing provisions to improve cash flow. In this article, we turn to two provisions that act more like guardrails than incentives: the Excess Business Loss (EBL) limitation and the Section 163(j) interest limitation.

While these rules don’t expand deductions, they define how and when losses and interest can be used. For many business owners — particularly those operating through pass-through entities — they have real consequences for both business strategy and personal tax liability.

What changed

Excess Business Loss Limitation (EBL)

• What it does: Caps the amount of business losses that noncorporate taxpayers (such as S corporation shareholders, partners, and sole proprietors) can use to offset non-business income like wages or investment earnings.
• What happens next: Losses in excess of the cap don’t disappear — they become Net Operating Losses (NOLs), carried forward to offset income in future years.
• The big update: Previously set to expire, the One Big Beautiful Bill makes the EBL limitation permanent.

Section 163(j) Interest Limitation

• What it does: Restricts the deductibility of business interest expense, generally capping it at 30% of adjusted taxable income (ATI).
• What’s new: The Bill improves the calculation of ATI by allowing businesses to add back depreciation and amortization — an important change for companies making capital investments.
• Who it affects: Highly leveraged businesses, or those financing expansions with debt, are most impacted.

The impact of these provisions falls most heavily on pass-through entities, where income and deductions flow directly to owners’ personal returns.

For individual owners, the EBL limitation means business losses may no longer offset personal income in full, shifting the timing of tax benefits.

For businesses, the 163(j) cap may reduce the deductibility of interest expense, raising the effective cost of borrowing.

For both, these guardrails can alter decisions around growth, financing, and investment.

In short: these aren’t abstract accounting rules. They shape how businesses choose to expand — and how much owners pay in tax along the way.

Why it matters

Over the past three years, the 163(j) interest limitation rules have been very impactful for clients. By limiting the amount of interest they could deduct on their returns, highly leveraged companies found themselves in a difficult position. If they took out loans to fund capital investments, they might have had to pay tax on income that was offset by interest expense — deductions they otherwise should have had.

The good news: the new rules improve this situation by allowing businesses to add back items like depreciation and amortization in calculating ATI. In practice, this means that if a company invests in property, plant, equipment, and know-how — and finances that investment with debt — they get depreciation, often accelerated under the new rules, or amortization on the assets and don’t lose out on interest deductions because of those depreciation and amortization charges.

In plain terms: the roadblock has been cleared. Businesses that had been delaying expansion because they weren’t getting the full tax benefit of their financing no longer need to worry. Now is the time to evaluate growth plans and consider accelerating investments.

At the same time, the EBL limitation — once temporary — has been made permanent. That clarity is valuable: owners know what the rules are going forward, which means they can model their tax outcomes with confidence.

Together, these two provisions work in tandem: 163(j) makes borrowing for growth more tax-efficient, while the EBL limitation defines how owners can use losses personally. With permanence established, there’s no reason to wait; now is the time to run the numbers and plan accordingly.

Simultaneously, if the business generates a paper loss from accelerated deductions, the EBL limitation may cap how much of that loss the owner can apply against personal income in the same year. The remainder, however, converts to an NOL, which can offset income in future years.

The combination of 163(j) and EBL reshapes the timing of tax benefits, not whether they’re available. For businesses weighing major investments, understanding these dynamics is key to maximizing value.

Planning around the limitations

When it comes to the EBL limitation, timing is everything. Business owners should evaluate whether accelerating or deferring deductions makes the most sense given current income levels. Losses that exceed the cap are not lost (they become NOLs carried forward into future years) but tracking those carryforwards carefully is essential if you want to make full use of them later. Coordination also matters. Elections like SALT and PTET can influence how much income or loss shows up on a personal return, meaning entity-level choices ripple directly into the owner’s individual tax picture.

For the Section 163(j) interest limitation, businesses should take a fresh look at their financing strategies. Companies that rely heavily on debt need to model the after-tax cost of borrowing under the new ATI rules, now that depreciation and amortization are added back to the calculation. In some cases, shifting the mix between equity and debt can minimize exposure to interest caps. And because depreciation and amortization no longer reduce ATI, investments in fixed assets work more smoothly with interest deductions than they did under prior law.

Coordination with other provisions

Neither of these limitations exist in isolation. They interact with many other provisions of the One Big Beautiful Bill, often in ways that amplify their impact. For example, bonus depreciation and Section 179 can accelerate large deductions, which may trigger the EBL limitation and convert current-year deductions into NOLs for the future. Similarly, SALT and PTET elections affect how taxable income flows to owners, influencing both the application of the loss limitation and the interest cap. Even permanent individual provisions — such as updated brackets, expanded credits, and higher retirement contribution limits — shift the broader tax landscape in ways that intersect with these business rules.

The key is coordination. Planning effectively requires weaving these pieces together into a holistic strategy that reflects both immediate opportunities and long-term goals.

Local impact

For Rochester-area businesses, these provisions are not abstract tax law changes — they have immediate, practical consequences. A manufacturer financing new machinery may now deduct both depreciation and interest, strengthening cash flow to fuel growth. A professional services partnership with volatile income could see short-term losses capped, but those losses may still hold long-term value as NOL carryforwards. And a developer using leverage to expand facilities will need to consider how the interplay between debt and depreciation shapes current tax liability and future profitability.

By understanding how these provisions work together, businesses can shift from being restricted by limitations to using them as planning parameters — tools that guide, rather than hinder, growth.

The bottom line

The Excess Business Loss limitation and the Section 163(j) interest limitation may not generate headlines like new deductions or credits, but they are fundamental to shaping strategy. For business owners, they establish the rules of the game: how losses and financing costs flow through returns. For individuals, they determine how much personal income can be offset by business activity. For both, the permanence and clarity now provided by the One Big Beautiful Bill create a chance to plan with greater confidence.

The message is simple: don’t wait. With 163(j) updated to make debt-funded growth more attractive, and the EBL limitation cemented for the long term, now is the time to revisit growth plans, model outcomes, and take action.

At MMB+CO, we work with clients to navigate these limitations, coordinate them with other provisions, and turn legislative guardrails into opportunities. By planning early, businesses can avoid surprises, optimize financing, and move forward with renewed clarity.

MMB+CO is a full-service accounting and advisory firm offering audit, tax, consulting and business advisory services to clients across New York State and beyond. Ranked on Inside Public Accounting’s Top 200 Firms nationwide and with a deep-rooted culture of innovation and inclusion, the firm has earned a reputation for excellence in both client outcomes and workplace experience. Learn more at mmbaccounting.com.

Anthony Scinto, CPA, is a partner at MMB+CO