Breaking Down Interest Deductibility Provisions in the Congressional Tax Bills

As tax reform negotiations continue, lawmakers in the House and Senate are considering changes to the treatment of interest deductibility—the ability of businesses to deduct the interest they pay on corporate debt.

Any limits to the deduction pose a threat to middle-market growth, making it more expensive for companies to borrow money to fuel expansion.

ACG is watching the issue closely and tracking the bills in the House and the Senate, and their respective treatment of interest deductibility. Below is a breakdown. ACG encourages its members to share their views on the importance of interest deductibility with their local senators.

Interest Deductibility Treatment: House v. Senate

House Bill

• All businesses’ interest deduction for net interest expense would be limited to 30 percent of a business’s adjusted taxable income (defined as EBITDA)
• Exemptions to the rule include:
  • Small Business Exemption: For businesses with average gross receipts of $25 million or less, the rule does not apply
  • Public Utilities Exemption
  • Real Estate Exemption: For real property trades or businesses, the rule does not apply
  • Auto Dealer Exemption: For taxpayers that paid or accrued interest on “floor plan financing indebtedness,” the rule does not apply
• The Joint Committee on Taxation, or JCT, estimates that the House’s proposal for capping the deduction for business interest deductibility would raise $172 billion over the next 10 years.

Senate Bill

• All businesses’ interest deduction for net interest expense would be limited to 30 percent of a business’s adjusted taxable income (defined as EBIT)
• Groups receiving exemptions from the rule include:
  • Small businesses, defined as those with average annual gross receipts under $15 million during the three preceding years
  • Public utilities
  • Real estate
• The JCT estimates that the Senate’s proposal for capping the deduction for business interest deductibility would raise $308 billion over the next 10 years.

Building a Better Bill

Following the release of language for both the House and Senate bills, Businesses United for Interest and Loan Deductibility—known as the BUILD Coalition—sent a letter to lawmakers outlining a list of requested changes to the Senate tax proposal regarding the treatment of interest deductibility.

Both chambers are seeking a limitation to interest deductibility. BUILD and ACG, a member of the coalition, are working to negotiate the language being put forth in Congress.

ACG members are encouraged to participate in the effort by contacting their representatives to express the importance of interest deductibility to middle-market businesses and M&A.

For a detailed look at the full proposal released on Nov. 2, check out MMG’s analysis. 

Correction: A previous version of this story incorrectly stated that the BUILD Coalition has shifted its advocacy efforts away from calling for full interest deductibility. The coalition maintains its position that pro-growth tax reform should maintain full interest deductibility.