While much attention is currently focused on bonus depreciation and Section 179 enhancements, another critical provision of the new tax law is quietly revolutionizing equipment financing: the restoration of EBITDA-based business interest deduction calculations. For capital-intensive businesses, this change can mean hundreds of thousands of dollars in additional deductible interest capacity, fundamentally altering equipment financing economics.
Since 2022, businesses have been limited in how much interest expense they can deduct annually. The limitation restricts deductible business interest to 30% of adjusted taxable income, but the calculation method significantly impacts available capacity.
Understanding the Business Interest Limitation
Previous limitation (2022 through 2024)
Based on EBIT (earnings before interest and taxes)
No add-back for depreciation, amortization, or depletion
Tighter restrictions on deductible interest capacity
Example compound benefit scenario
Production equipment: $3 million (100% bonus depreciation)
R&D equipment: $800,000 (immediate R&D expensing)
Facility improvements: $5 million (QPP qualification)
Total immediate deductions: $8.8 million
Tax savings (37% bracket): $3.26 million
Net investment: $5.54 million for $8.8 million in improvements
The EBITDA restoration particularly benefits capital-intensive businesses with significant depreciation expenses – exactly the businesses making major equipment investments.
Real-World Financial Impact
QPP qualification requirements
Construction timeline: Begin between 1/19/25 and 1/1/29, complete by 12/31/30
Activity requirements: Significant assembly, processing, or production activities
Location requirement: Conducted within the U.S.
Facility scope: Manufacturing facilities and related production equipment
Compounding benefit example
Equipment purchase: $1 million in manufacturing machinery
Immediate tax benefit: $370,000 (100% bonus depreciation at 37% rate)
Annual depreciation impact: $200,000 (five-year normal depreciation schedule)
Enhanced interest capacity: $60,000 annually (30% of $200,000)
Additional borrowing support: Approximately $850,000 at 7% interest rates
QPP opportunity indicators
Facility expansion plans or new construction projects
Production line additions requiring building modifications
Manufacturing reshoring or domestic production expansion
Facility modernization or automation projects
Example QPP integration
Customer need: New manufacturing facility for automotive parts
QPP opportunity: $8 million facility construction
Equipment package: $2.5 million production equipment
Coordination strategy: Time equipment delivery with facility completion
Combined benefits: $10.5 million immediate deductions, $3.89 million tax savings
1. Debt vs. cash analysis
Based on what you're telling me about your current equipment depreciation, it sounds like you might have significantly more borrowing capacity than you realize under the new tax law changes."
2. Leveraged growth strategies
Enhanced interest capacity supports multi-year equipment financing programs without hitting deduction limitations that previously constrained growth plans.
3. Multi-year equipment planning
2025 through 2026: Establish baseline debt structure to maximize enhanced capacity
2027 through 2028: Plan major equipment financing within beneficial calculation period
2029 final-year optimization before reverting to EBIT-based calculations
Understanding the technical aspects ensures proper planning and compliance with enhanced interest deduction rules.
Technical Considerations and Compliance
Documentation requirements
Maintain detailed depreciation schedules
Track interest expense by source and purpose
Coordinate with tax professionals for optimal applications
Annual interest limitation calculations and planning
Multi-year debt strategy optimization
State tax compliance and coordination
Tax professional coordination
Lenders that understand interest deduction coordination
Financing structures that optimize tax benefit timing
Equipment financing that integrates with overall debt strategy
Financing partner selection
Action Steps for Business Owners
New tax law restoration (2025 through 2029)
Based on EBITDA (earnings before interest, taxes, depreciation, and amortization)
Add back depreciation, amortization, and depletion to income
Significantly expanded deductible interest capacity
Example calculation
Previous tax law: 30% of $2M EBIT = $600K deductible interest
New tax law: 30% of $2.8M EBITDA ($2M + $800K depreciation) = $840K deductible interest
Result: $240K additional annual interest deduction capacity
The real power emerges when combining enhanced interest deductions with 100% bonus depreciation and Section 179 benefits. Equipment purchases that generate immediate depreciation deductions also increase future interest deduction capacity.
Integration With Equipment Depreciation Benefits
Businesses can now support higher leverage ratios for equipment acquisition, enabling more aggressive growth strategies while maintaining tax efficiency.
Manufacturing company example
Annual EBIT: $3 million
Depreciation and amortization: $1.2 million
Previous interest limit: $900,000 (30% of $3 million)
New interest limit: $1.26 million (30% of $4.2 million)
Additional borrowing capacity: At 7% interest, approximately $5.1 million in additional debt capacity
Construction company scenario
Annual EBIT: $1.5 million
Equipment depreciation: $600,000
Previous limit: $450,000 deductible interest
New limit: $630,000 deductible interest
Impact: $180,000 additional annual interest deduction capacity
Healthcare practice example
Annual EBIT: $800,000
Equipment depreciation: $300,000
Previous limit: $240,000 deductible interest
New limit: $330,000 deductible interest
Result: $90,000 additional capacity supports approximately $1.3 million more in equipment financing at 7%
Equipment purchases become self-reinforcing: immediate depreciation provides cash flow through tax savings, while ongoing depreciation deductions increase borrowing capacity for future equipment investments.
Enhanced interest deduction capacity changes fundamental equipment financing calculations and strategies.
Equipment Financing Strategy Optimization
Manufacturing
Heavy machinery creates substantial depreciation
Production equipment financing benefits from enhanced capacity
Multi-facility expansion becomes more financially attractive
Different industries benefit uniquely from enhanced interest deduction capacity based on their capital intensity and depreciation patterns.
Industry-Specific Applications
Construction
Fleet equipment generates significant depreciation
Seasonal financing needs benefit from expanded capacity
Equipment replacement cycles can be accelerated
Healthcare
Medical equipment depreciation enhances interest capacity
Practice expansion financing becomes more viable
Technology upgrade financing is better supported
Transportation
Commercial vehicle depreciation provides substantial add-backs
Fleet expansion financing capacity increases significantly
Equipment replacement strategies can be optimized
Working capital optimization
Greater debt capacity for operational financing needs
Improved cash flow management during growth phases
Enhanced financial flexibility for opportunity capture
Enhanced interest deduction capacity improves overall business cash flow management beyond just equipment financing.
Cash Flow and Working Capital Benefits
Growth financing coordination
Equipment financing can be coordinated with expansion capital
Acquisition financing benefits from improved debt capacity
Strategic investment timing becomes more flexible
Strategic timing considerations
The EBITDA restoration runs through 2029, creating a defined window for optimizing interest deduction strategies.
Planning for the 2025 Through 2029 Window
Businesses should model debt and equipment strategies across the entire benefit window to maximize cumulative advantages while preparing for post-2029 planning.
Start with adjusted taxable income
Add back depreciation, amortization, and depletion
Multiply by 30% to determine maximum deductible interest
Compare to actual interest expense to determine limitation
Calculation methodology
Not all states conform to federal interest limitation rules, requiring separate analysis of combined federal and state impact.
Enhanced interest deductions work most effectively when coordinated with other tax benefits for maximum impact.
Coordination With Other New Tax Law Provisions
Equipment generating immediate depreciation also increases interest deduction capacity in future years, creating compounding benefits.
Immediate expensing creates current-year tax savings while building interest deduction capacity for ongoing financing needs.
1. Bonus depreciation coordination
Manufacturing facility depreciation significantly enhances interest deduction capacity for related equipment and operational financing.
3. QPP facility benefits
2. Section 179 integration
Maximizing enhanced interest deduction benefits requires sophisticated planning and professional coordination.
Professional Planning and Implementation
Equipment acquisition timing optimization
Growth strategy coordination with debt capacity
Cash flow management across benefit periods
Business planning integration
Calculate your enhanced interest deduction capacity using current depreciation levels
Model equipment financing scenarios with expanded debt capacity
Coordinate with tax professionals to optimize timing and application
Review current debt structure for optimization opportunities
Develop multi-year equipment financing strategies within the benefit window
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Enhanced interest deduction capacity represents more than just higher borrowing limits – it enables strategic business planning that coordinates equipment investment with capital structure optimization.
Looking Forward: Strategic Implications
More aggressive equipment investment strategies
Enhanced ability to capitalize on market opportunities
Greater financial flexibility during growth phases
Competitive advantages
Equipment financing strategies that compound over time
Coordinated tax and financing planning for maximum benefit
Enhanced capacity for business expansion and acquisition
Long-term planning benefits
The restoration of EBITDA-based interest limitations fundamentally changes equipment financing economics for capital-intensive businesses. When combined with enhanced depreciation benefits, these provisions create unprecedented opportunities for strategic equipment investment and business growth.
The key is understanding how these provisions interact and developing comprehensive strategies that maximize cumulative benefits while maintaining operational flexibility. Businesses that master this coordination will gain significant competitive advantages in equipment acquisition and financing capacity.
LEAF specializes in equipment financing strategies that coordinate with enhanced interest deduction benefits and other new tax law provisions. Our expertise helps businesses optimize both equipment investments and capital structure for maximum tax and operational advantages.
Strategic Applications
Leveraged equipment acquisitions
Business expansion financing
Acquisition and growth capital structures