The EBITDA Add-Back Is Back — Permanently

Under the One Big Beautiful Bill Act (OBBBA), Section 163(j)'s business interest limitation permanently reverts to an EBITDA-based calculation for tax years beginning after December 31, 2024, reversing the EBIT-only test that had constrained deductible interest since 2022.

Why the EBIT-to-EBITDA Shift Matters for Portfolio Companies

Adding depreciation and amortization back into the interest limitation base widens the ceiling on deductible interest expense for leveraged businesses. For asset-heavy or recently acquired portfolio companies still working through purchase-price amortization, that distinction is not academic — it can materially change how much interest expense is currently deductible versus carried forward.

What GPs and Fund Administrators Should Review Now

Three questions determine whether a portfolio company benefits from this change: which holdings were interest-limited under the EBIT test and now have new headroom; whether disallowed interest carryforwards from 2022–2024 can be absorbed sooner under the restored EBITDA base; and how this changes leverage and refinancing conversations for deals underwritten during the EBIT-only window.

"Permanent" means this isn't a planning window that closes — it's the new baseline. Portfolio-level interest capacity modeling done under the old EBIT test should be revisited now, not at the next refinancing.

Cross-Border Considerations

For cross-border U.S.–MENA structures with related-party debt, the restored EBITDA base interacts with existing earnings-stripping considerations, making related-party loan structuring worth a fresh look under the new limitation.

Frequently Asked Questions

When does the Section 163(j) EBITDA restoration take effect?

It applies permanently to tax years beginning after December 31, 2024, under the One Big Beautiful Bill Act.

What changed from the prior EBIT-only test?

The EBIT-only test (in effect 2022–2024) excluded depreciation and amortization from the interest limitation base. The restored EBITDA base adds them back, generally increasing the amount of deductible business interest expense.

Can disallowed interest from 2022–2024 be used under the new rule?

Disallowed interest carryforwards may be absorbed sooner under the restored EBITDA base, depending on each entity's specific facts — this should be evaluated on a portfolio-company-by-portfolio-company basis.