If you’re out there building wealth for your investors through a syndication, you need to know about business interest limitations and what changed in 2025.
The Groundwork
The business interest limitation was put in place by the IRS to cap how much interest a business can deduct.
Most small to mid-size real estate investors aren’t impacted by this limit, since a business’s gross receipts must exceed $30M to be subject to it.
However, a group real estate investment can have that $30M exemption disallowed if more than 35% of the depreciation in the investment goes to limited partners — the IRS then considers it a tax shelter.
This caused many syndications to face a tough choice: (A) be hit with interest deduction limitations, or (B) elect into a longer depreciation schedule, making them ineligible for bonus depreciation.
The good news: the One Big Beautiful Bill Act (OBBBA), enacted July 4, 2025, marks a significant turnaround in how business interest deductions are treated under IRC Section 163(j) — and reverses some of the more restrictive rules real estate investors had been navigating in recent years, including the bonus depreciation phase-down that had reduced the deduction to 80% in 2023 and 60% in 2024.
1. EBITDA-Based Limitation Restored and Made Permanent
For tax years beginning after December 31, 2024, the limitation on business interest expense has been restored to 30% of EBITDA (earnings before interest, taxes, depreciation, and amortization) — a far more favorable basis than the interim EBIT standard (which excluded depreciation and amortization) that had been in place since 2022.
2. Bonus Depreciation
Though not strictly part of the interest limitation, the reinstatement of 100% bonus depreciation for property placed in service after January 19, 2025 enables accelerated depreciation benefits, which directly affect interest deductibility for real estate investors.
More Good News for Real Estate Investors
Improved early cash flow: the renewed EBITDA basis allows real estate ventures like syndications — especially those with substantial depreciation or amortization — to deduct more interest upfront, boosting early after-tax cash flow and enhancing project financing flexibility.
Re-evaluate RPTOB elections: many real estate investors previously elected to be treated as an electing real property trade or business (RPTOB) to sidestep the prior business interest limitation, at the cost of using the less favorable Alternative Depreciation System (ADS). With the return of bonus depreciation and the EBITDA standard, that trade-off may no longer be necessary — leveraging the standard treatment could now be more advantageous.
Bonus depreciation meets cost segregation: investors should aggressively pursue cost segregation studies to identify short-lived assets eligible for 100% bonus depreciation. This further lifts EBITDA, increasing interest deductibility and enhancing immediate tax savings.
Summary: Pre- vs. Post-2025 Tax Environment
- Interest limitation basis — pre-2025 (2022-2024): 30% of EBIT, excluding depreciation/amortization. Post-2025 (OBBBA): 30% of EBITDA, including depreciation/amortization.
- Depreciation option — pre-2025: bonus depreciation phasing out. Post-2025: 100% bonus depreciation restored permanently.
- RPTOB election impact — pre-2025: useful to avoid 163(j), but requires ADS. Post-2025: less attractive, since standard treatment is now more favorable.
Action Plan for Investors and Sponsors
1. Model new deductions using EBITDA. Reproject interest deductibility and cash flows using the EBITDA basis, and compare outcomes to scenarios where RPTOB elections and ADS depreciation were used.
2. Cost segregation studies. Fast-track or update cost segregation analyses to capture qualifying bonus-depreciation assets and maximize upfront deductions.
Conclusion
The OBBBA’s reforms to business interest limitations dramatically alter the tax landscape for real estate investors. By restoring the EBITDA standard and enabling full bonus depreciation, the law gives investors more room to maximize their deductions and put that capital back to work.
If you’re a real estate investor looking to grow your assets, start a syndication, or share the love of all things real estate, reach out to us. We’re always happy to help you on your investing journey toward profitability.
