What Is Adjusted Taxable Income (ATI) for 2026?
If your business has loans or other financing, you’ve likely heard about Adjusted Taxable Income (ATI). ATI is one of the most important calculations under IRC Section 163(j) because it determines how much business interest your company can deduct each year.
For 2026, understanding ATI is essential for businesses with significant debt, equipment financing, or commercial real estate loans.
Why ATI Matters
Under IRC Section 163(j), the annual business interest deduction is generally limited to:
- Business interest income
- + 30% of Adjusted Taxable Income (ATI)
- + Floor plan financing interest (if applicable)
The higher your ATI, the larger your potential interest deduction.
How Is ATI Calculated?
ATI starts with your taxable income and then makes several required adjustments.
Generally, ATI excludes or adjusts for:
- Business interest expense
- Business interest income
- Net operating loss (NOL) deductions
- Section 199A Qualified Business Income (QBI) deductions
- Items not properly connected to a trade or business
What’s New for 2026?
Depreciation Is Added Back Again
One of the biggest changes for 2026 is the return of depreciation, amortization, and depletion addbacks when calculating ATI.
This generally increases ATI, allowing many businesses to deduct more interest expense than they could under previous rules.
Certain Foreign Income Is Excluded
Beginning with tax years after December 31, 2025, ATI also excludes certain Controlled Foreign Corporation (CFC) inclusion amounts and related deductions.
This change primarily affects businesses with international operations.
ATI Is Not EBITDA
Although ATI may resemble EBITDA in some situations, it is not the same calculation.
ATI is a tax-specific figure created under the Internal Revenue Code and includes numerous required adjustments that differ from financial statement calculations.
Who Should Pay Attention?
ATI is especially important for businesses that have:
- Commercial mortgages
- Equipment financing
- Business acquisition debt
- Real estate investments
- Large depreciation deductions
Even profitable businesses may find that their deductible interest changes significantly depending on their ATI calculation.
Key Takeaways
- ✔ ATI determines how much business interest can be deducted under Section 163(j).
- ✔ It begins with taxable income but requires several tax-specific adjustments.
- ✔ Depreciation, amortization, and depletion are once again added back for 2026.
- ✔ Certain foreign income inclusions are now excluded from ATI.
- ✔ A higher ATI generally allows a larger business interest deduction.
Need Help Calculating ATI?
Calculating Adjusted Taxable Income correctly can significantly impact your allowable interest deduction and overall tax liability. Our CPA team can help determine your ATI, maximize deductible interest, and develop tax-saving strategies tailored to your business.
Contact us today to review your 2026 business interest deduction and ATI calculation.
