A corporation is computing its adjusted taxable income for purposes of the IRC Section 163(j) business interest expense limitation for a tax year beginning January 1, 2025. Under the One Big Beautiful Bill Act's amendment to Section 163(j), how is adjusted taxable income computed with respect to depreciation, amortization, and depletion?
- Depreciation, amortization, and depletion continue to be excluded from the computation entirely, continuing the stricter method that had applied to tax years beginning after 2021
- Adjusted taxable income is computed without any reference to depreciation, amortization, or depletion at all, since the One Big Beautiful Bill Act removed those items from the computation
- Depreciation, amortization, and depletion are added back only for tax years beginning before 2022, and the One Big Beautiful Bill Act made no change to the computation for any later tax year
- Depreciation, amortization, and depletion are added back to taxable income when computing adjusted taxable income, permanently restoring the more favorable method for tax years beginning after December 31, 2024
Why D? And why not the others?
Correct answer: D. Depreciation, amortization, and depletion are added back to taxable income when computing adjusted taxable income, permanently restoring the more favorable method for tax years beginning after December 31, 2024
The One Big Beautiful Bill Act permanently restored the more favorable method of computing adjusted taxable income under IRC Section 163(j) by reinstating the addback of depreciation, amortization, and depletion for tax years beginning after December 31, 2024, reversing the stricter method that excluded those items and had applied to tax years beginning after December 31, 2021; because adding these items back increases adjusted taxable income, the change generally increases the amount of business interest expense a taxpayer may currently deduct. The option describing continued exclusion of those items describes the stricter, pre-existing method as if it still applied, when the new law specifically reverses it for 2025 and later years. The option claiming the items are removed from the computation altogether mischaracterizes the change; they are deliberately added back, not omitted from the calculation. The option claiming no change was made for years after 2021 gets the timing exactly backwards, since restoring the addback specifically for tax years beginning after December 31, 2024, is the entire point of the amendment.
Source: IRC Section 163(j), as amended by the One Big Beautiful Bill Act, Pub. L. 119-21 (2025)