What Does the One Big Beautiful Bill Act Mean for Banks?

The One Big Beautiful Bill Act is making waves in the financial world. For banks, the new legislation brings changes that will shift how you manage loans, report interest and support your customers.

Some parts are straightforward. Others are more complicated.

For financial institutions trying to sort out what matters most (and what you need to do next), here’s a breakdown of what’s changed, what it means and what to keep on your radar.

Interest Income Exclusion for Agricultural Loans

One of the most significant changes for financial institutions is the interest income exclusion related to agricultural loans.

Through the One Big Beautiful Bill Act, banks are now allowed to exclude 25% of their interest income from qualifying loans. These loans must be:

• Tied to U.S. customers with real property related to agricultural production (rural or agricultural real estate)
• Refinanced loans are not qualified
• Originated after the Bill was signed (on or after July 5, 2025)

According to the Bill, “rural or agricultural real estate” includes property primarily used for producing agricultural products, fishing, seafood processing or aquaculture (such as hatcheries or rearing ponds), as long as the property is located in a U.S. state or territory.

If a loan meets the criteria above, the bank should break out the qualifying loan and related interest income on its general ledger to apply the 25% exclusion of income from that loan. To apply the exclusion correctly, you’ll need to start tracking these qualified loans separately.

It’s also important to note that, with the 25% exclusion of interest income from qualifying agricultural loans, Section 265 (which limits interest expense that is deductible related to tax-exempt obligations) applies. This would partially offset the tax benefit.

The goal behind this provision is to encourage more investment in agricultural areas. By allowing banks to exclude part of the interest income from qualifying loans, the Bill makes these loans more appealing for banks. This change could shift how banks approach agricultural lending, so it will be important for banks to monitor how this change impacts agricultural lending to remain competitive in this space.

While tax-exempt income is common in the financial institution industry, a carve-out specific to a specific property type like this is new. We will continue to monitor for additional guidance that addresses unanswered questions on how this provision should be applied.

For example, what are the specific details on what qualifies as agricultural real property? Can any portion of a refinanced loan or modified loan qualify for the exclusion? These are the kinds of areas where financial institutions are waiting for the IRS to issue additional guidance.

Auto Loan Interest Deduction

The One Big Beautiful Bill Act allows individuals to deduct up to $10,000 in interest on qualifying auto loans. The deduction starts to phase out for taxpayers with income over $200,000 (for joint filers) or $100,000 (for single filers). This provision has gotten a lot of attention from individuals, but financial institutions must understand how it affects them as well.

Banks will need to track the auto loans they issue and report the interest paid by customers so that their customers can use that documentation to claim this deduction on their tax returns.

This introduces an additional reporting requirement, and banks will need to collect specific information for auto loans originated in 2025 and beyond. While the exact format of this documentation is still unknown, it’s expected to be similar to a Form 1098.

There are also caveats about what qualifies as an eligible auto loan. The vehicle purchased must meet certain requirements, including being assembled in the United States. One open question is whether banks will be responsible for determining if a vehicle qualifies for the auto loan interest deduction.

Until more guidance is issued to address uncertainties like this, banks should focus on gathering the right information to classify these loans properly and avoid missing any reporting requirements.

Interest Expense Limitation

Another change that affects banks’ customers is the update to the interest expense limitation under Section 163(j).

This Section 163(j) limitation was introduced as part of the 2017 Tax Cuts and Jobs Act and limits how much interest expense a business can deduct. Starting in 2022, businesses could only deduct interest up to 30% of Earnings Before Interest and Taxes (EBIT), rather than Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA). That meant depreciation and amortization could no longer be added back when calculating the deduction.

Now, for tax years beginning after December 31, 2024, businesses can once again use EBITDA to calculate their interest expense limitation. This is a welcome change that should allow businesses to deduct more interest expense.

Learn More About How Financial Institutions Should Respond to the One Big Beautiful Bill Act

Many provisions in the One Big Beautiful Bill Act raise questions that haven’t been answered yet. The call to action for financial institutions is clear: be aware of these provisions and stay alert for future guidance. You’ll need good records so you can take advantage of these changes when the time comes.

As new guidance comes out, it will be critical for financial institutions to work closely with their tax advisors to make sure they’re interpreting and applying these provisions correctly. To learn more, contact your Warren Averett advisor directly, or ask a member of our team to reach out to you.