IRS Updates Section 163(j): What It Means for Marine Businesses (2025–2026)
IRS Updates Guidance on Business Interest Deduction Limits Under Section 163(j)
The IRS released updates to Fact Sheet 2025-09 reflecting amendments under the One, Big, Beautiful Bill (OBBB). For marine businesses—shipyards, charter operators, marinas, and vessel service providers—these changes can impact how much interest expense you can deduct, especially when equipment, refits, and financing are involved.Overview: What is Section 163(j)?
Section 163(j) limits how much business interest expense you can deduct each year. In general, deductible business interest is capped at:
- Business interest income
- Plus 30% of Adjusted Taxable Income (ATI)
- Plus floor plan financing interest (if applicable)
Any disallowed interest generally carries forward to future tax years.
Key changes for tax years beginning after Dec. 31, 2024
1) Depreciation, amortization, and depletion are added back to ATI
For tax years beginning after Dec. 31, 2024, taxpayers may once again add back depreciation, amortization, and depletion when calculating ATI.
Why marine businesses care
Vessel yards, refit operations, lift equipment, service fleets, and equipment-heavy marine businesses often have significant depreciation. Adding it back can increase ATI—potentially allowing a larger interest deduction cap.
What to watch
Depreciation elections (179/bonus), debt levels, and whether interest is pushed into carryforward can materially change cash flow. This is worth modeling before filing.
2) Expanded definition of floor plan financing interest
The IRS clarified that floor plan financing interest now includes interest related to certain trailers/campers designed for temporary living quarters, expanding what may qualify.
While this is commonly associated with auto/RV dealerships, the update shows the IRS is actively clarifying what qualifies and how.
Additional changes for tax years beginning after Dec. 31, 2025
3) Capitalized interest is explicitly subject to Section 163(j)
The IRS confirmed that business interest expense includes interest that is incurred and capitalized during the year, except for interest capitalized under specific rules (including certain commodities and UNICAP interest capitalization rules).
Marine business example
If you’re financing a major refit, shop expansion, travel lift purchase, or dock improvement and capitalizing interest into the asset cost, that interest may still be evaluated under 163(j). Plan your project financing with this in mind.
4) Certain CFC income is excluded from ATI
The IRS clarified that U.S. shareholder inclusions under Subpart F, GILTI, and related gross-up amounts are excluded from ATI, with associated deductions also excluded.
What this means for marine business owners
These updates reinforce that interest expense planning is not “set it and forget it”—especially for marine businesses that finance equipment, carry seasonal working capital debt, or capitalize costs during expansions and refits.
- Model the impact of the ATI add-back changes before filing
- Review financing structures for asset purchases and refit projects
- Confirm capitalization workflows and documentation
- Coordinate cross-border ownership planning where applicable
Source & further guidance
This update is based on IRS Issue Number IR-2025-126 and Fact Sheet 2025-09.Link to the IRS source: IRS Newsroom
Want to know if 163(j) is limiting your deduction—or leaving money on the table?
For marine businesses, interest deductions can swing significantly based on depreciation elections, refit financing, and whether interest is capitalized into projects. A quick review can help you avoid surprises and improve cash flow planning.
In 20 minutes, we can:
confirm whether your interest is being limited,
highlight planning levers for 2025–2026,
and outline a clean documentation path.
Best for: shipyards, marinas, charter operators, marine service companies, brokerages, and equipment-heavy marine SMBs.
Tip: bring your last return, debt schedule, and fixed asset additions (or QuickBooks summary). We’ll guide you if you don’t have everything.
FAQ: Section 163(j) for Marine Businesses
Quick AnswersDoes this mean my marina or yard can deduct more interest in 2025?
Potentially. If depreciation/amortization/depletion add-backs increase your ATI, your deductible interest cap may rise. The impact depends on your debt levels, taxable income, and entity structure.
We’re financing a refit and capitalizing interest—does 163(j) still apply?
Beginning in 2026 (tax years after Dec. 31, 2025), the IRS clarified that capitalized interest may still be treated as business interest expense subject to 163(j), except in specific cases. Refits and construction planning should be modeled early.
What documents do you need to assess 163(j) exposure?
Typically: prior-year return, a debt/loan summary, interest expense totals, and fixed asset additions/depreciation detail. If you have QuickBooks, a P&L + balance sheet and fixed asset list is a strong start.
Does 163(j) apply to pass-through entities like S Corps and partnerships?
Yes—163(j) can apply to many entities. The mechanics vary based on the entity type and elections. Coordination between entity returns and owner-level outcomes matters.
Can disallowed interest be used later?
Often, yes. Disallowed business interest is typically carried forward, but the ability to use it depends on future ATI and other factors. Tracking carryforwards is important—especially for growing marine businesses.
What’s the biggest mistake marine businesses make with interest deductions?
Treating interest and depreciation as separate planning items. For asset-heavy marine operations, depreciation elections can materially change ATI, which changes the interest deduction cap. Planning them together is where the savings often appear.