Glossary
EBITDA: meaning, formula and the IRS version (ATI)
EBITDA means earnings before interest, taxes, depreciation and amortization. See the formula, a worked example and how the IRS's adjusted taxable income on Form 8990 works like it.
Prepared by Aldro Accounting · Updated · Sources checked
The quick answer
EBITDA is an acronym for earnings before interest, taxes, depreciation and amortization. The IRS uses it to describe adjusted taxable income (ATI) under section 163(j): for tax years beginning after 2024, ATI again adds back depreciation and amortization, replacing the EBIT-based calculation used for 2022 through 2024. Business interest expense is generally limited to 30% of ATI plus business interest income and floor plan financing interest.
What EBITDA means
EBITDA is an acronym for earnings before interest, taxes, depreciation and amortization. It is a profit figure counted before those four items come out. EBIT, the narrower measure, is earnings before interest and taxes only.
EBITDA isn't a line on a federal tax return, but the IRS uses the term to explain adjusted taxable income, or ATI, under section 163(j). ATI starts from tentative taxable income and is figured without business interest income or expense, the net operating loss deduction and the section 199A deduction. For tax years beginning after 2024, it is also figured without depreciation, amortization or depletion, which the IRS describes as an EBITDA-based calculation replacing the EBIT-based one used for 2022 through 2024.
ATI matters because deductible business interest expense generally can't exceed business interest income, plus 30% of ATI, plus floor plan financing interest. Form 8990 does the math. A small business taxpayer that isn't a tax shelter, with average annual gross receipts of $31 million or less for the 3 prior tax years ($32 million for 2026), generally doesn't need to file it.
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Worked example
A business has net income of $100,000, interest of $20,000, income taxes of $15,000, depreciation of $25,000 and amortization of $5,000. EBITDA = $100,000 + $20,000 + $15,000 + $25,000 + $5,000 = $165,000. On Form 8990, if its tentative taxable income is $90,000, its business interest expense is $20,000 and its depreciation and amortization total $30,000, ATI is $140,000. 30% of that is $42,000, so with no business interest income, all $20,000 of interest fits under the limit.
Common questions
Did the One Big Beautiful Bill Act bring back the depreciation add-back?
Yes. P.L. 119-21 amended section 163(j) to add back depreciation, amortization and depletion when figuring ATI for tax years beginning after 2024. Form 8990 line 11 was revised for it.
What happens to interest above the limit?
It carries forward to the next year as a disallowed business interest expense carryforward. A partnership instead allocates it to its partners. An S corporation carries it over at the S corporation level.
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Sources
- IRS: Working Families Tax Cuts business provisions (video script) · checked October 31, 2026
- IRS: Instructions for Form 8990 · checked October 31, 2026
- IRS: Fact Sheet 2026-14, business interest expense limitation FAQs · checked October 31, 2026
This guide explains general rules from the sources listed. It isn’t tax advice for your situation.