Morelle’s legislation passes allowing manufacturers to keep deducting interest expenses

Posted 1 February 2024 at 9:02 am

Press Release, Congress Joe Morelle

WASHINGTON, DC – Congressman Joe Morelle announced on Wednesday the passage of legislation he authored to support America’s manufacturing industry.

The provisions of Congressman Morelle’s American Investment in Manufacturing (AIM) Act were included as part of the Tax Relief for American Families and Workers Act, enacting a technical change to the U.S. Tax Code allowing businesses to continue deducting interest expenses.

“I’m proud to have delivered on my promise to uplift our local manufacturers and end a harmful tax hike,” said Congressman Joe Morelle. “My legislation will permanently preserve the previous earnings before interest and taxes formula, allowing for a greater investment in manufacturing firms across the country and strengthening the backbone of our economy. I’m grateful these important provisions were included in the bipartisan Tax Relief for American Families and Workers Act, and I look forward to continuing to work with my colleagues across the aisle to enact solutions like this that support our manufacturing sector.”

Interest on business expenses is generally tax deductible but capped. At the end of 2021, the formula for calculating this deduction became more restrictive. Known as the Earnings Before Interest, Taxes, Depreciation, and Amortization standard (EBITDA), depreciation and amortization were removed from the calculation, limiting the ability to deduct interest expenses.

This change has had a disproportionate impact on the manufacturing sector of our economy, as manufacturing firms are often required to take out loans to finance large capital investments in their facilities and equipment.

AIM—as a part of the Tax Relief for American Families and Workers Act of 2024—will now restore the full EBITDA standard for deductions for taxable years beginning after December 31, 2023, and before January 1, 2026. Taxpayers may use the EBITDA standard for taxable years beginning after December 31, 2021, and before January 1, 2024 – effectively making the changes retroactive. After December 31, 2025, the standard returns to EBIT.