US TAX DESKFirst, the one term you need: "writing off interest"
When a business borrows money, it pays interest on the loan. Normally, it can subtract that interest from its income before calculating taxes — that's a "write-off" (a deduction), and it lowers the tax bill. Simple enough.
The catch: since 2018, a rule called Section 163(j) caps how much interest a business can deduct in a year. The cap is 30% of the company's earnings. The billion-dollar question is which version of "earnings" you use.
EBIT vs. EBITDA (stay with me — this is the whole story)
There are two ways to measure earnings for the cap:
- EBIT = earnings before interest and taxes.
- EBITDA = the same thing, but you also add back depreciation and amortization (basically, the paper "wear and tear" costs on buildings and equipment).
EBITDA is a bigger number. Bigger earnings number = bigger 30% cap = more interest you're allowed to deduct. From 2022 to 2024, the law used the stingier EBIT version, which squeezed companies that borrow a lot.
The One Big Beautiful Bill Act, signed in July 2025, permanently switched the cap back to the friendlier EBITDA version, retroactive to 2025. Translation: debt-heavy businesses can now write off a lot more interest again.
Why this matters for PE, private credit, and real estate
These three run on borrowed money. Private equity buys companies using loans (leveraged buyouts). Private credit funds are the lenders. Real estate is basically debt with a building attached. When more interest becomes deductible, deals pencil out better and after-tax returns go up. Real estate and construction were called out as especially big winners.
The 2026 catch
It's not all upside. Starting in 2026, a new "ordering rule" says the 163(j) cap applies before a business can shift interest onto other assets — closing a workaround some used to dodge the limit entirely. There's also a new rule trimming certain foreign income out of the earnings calculation. So the door reopened, but one of the escape hatches just got sealed.
Why you should care
This is one of those invisible rules that quietly shapes how much debt flows through the economy — funding apartment buildings, buyouts, and loans to mid-size companies. Cheaper borrowing (tax-wise) tends to mean more deals and more lending.
What to watch next
How funds react to the 2026 ordering rule, and whether Treasury or the IRS issues detailed guidance on the new foreign-income tweak. Both could shift how deals get structured this year.
Sources — go double-check us
- Grant Thornton — "OBBBA restores previous 163(j) benefits, adds some new limitations"
- The Tax Adviser — "Sec. 163(j) after OBBBA" (May 2026)
- Clark Nuber — "Major Updates to IRC Section 163(j) Under the OBBBA"
- Baker Tilly — "Business interest expense limitation changes impact real estate"
- Paul Hastings — "One Big Beautiful Bill Act — A Private Equity Perspective"
- Barnes Dennig — "One Big Beautiful Bill Meets Section 163(j)"