If you are out there craka lackin in real estate and making other investors wealthy by investing in your Syndication, then you need to know about Business Interest Limitations and what changed in 2025.
First-
The Groundwork: The Business Interest Limitation was put in place by the IRS to put a cap on how much interest a business can deduct.
Most small to mid-size real estate investors are not impacted by this limit, as the Gross receipts of the business must be over $30M to be subject to the limit.
However-
A group Real Estate investment can have the $30M exemption dis-allowed if more than 35% of the depreciation in the investment goes to LIMITED partners. This is because the IRS then considers it a tax shelter. (Which it totally is, lets be real)
This caused many Syndications to make a tough choice:
- Be hit with interest deduction limitations
OR
- Elect into a longer depreciation schedule, making them ineligible for Bonus Depreciation
But now, the good news:
The One Big Beautiful Bill Act (OBBBA), enacted on July 4, 2025, marks a significant turnaround in how business interest deductions are treated under IRC Section 163(j).
- 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) imposed since 2022. - 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 previous business interest limitation, albeit at the cost of using the less favorable Alternative Depreciation System (ADS). With the return of bonus depreciation and the EBITDA standard, this trade-off may no longer be necessary—rather, leveraging the standard could 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 will further lift EBITDA—thereby increasing interest deductibility and enhancing immediate tax savings
Summary Table: Pre- vs. Post-2025 Tax Environment
| Feature | Pre-2025 (2022-2024) | Post-2025 (OBBBA Law) |
| Interest Limitation Basis | 30% of EBIT (excluding depreciation/amortization) | 30% of EBITDA (includes depreciation/amortization) |
| Depreciation Option | Bonus depreciation phasing out | 100% bonus depreciation restored permanently |
| RPTOB Election Impact | Useful to avoid 163(j), but requires ADS | Less attractive; standard treatment more favorable |
Action Plan for Investors & Sponsors
- Model New Deductions Using EBITDA
Reproject interest deductibility and cash flows using the EBITDA basis. Compare outcomes to scenarios where RPTOB elections and ADS depreciation were used. - 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 enables investors to maximize their deductions, creating more income to put good use in our economy.
If you are a real estate investor looking to grow your assets, start a syndication, or otherwise share the love of all thing’s real estate – reach out to us. We are always happy to help you on your investing journey toward profitability.
