Personal interest is usually not deductible on your federal tax return, but there are key exceptions. Some, like mortgage interest, have long been available, while others, including a new break under the 2025 One Big Beautiful Bill Act (OBBBA), may allow you to reduce your tax bill in ways you might not expect. Here’s what you need to know about interest deductions you can claim.
1. Mortgage interest
Mortgage interest is the most familiar deduction, available if you itemize instead of taking the standard deduction. You can generally deduct interest on loans to buy, build, or improve your primary or secondary home. Points paid on your main home may also qualify. The 2025 One Big Beautiful Bill Act (OBBBA) made mortgage insurance premiums deductible starting in 2026, though the lower mortgage debt limit ($750,000 for new loans after 2017) remains in effect.
2. Auto loan interest
Thanks to the OBBBA, some or all interest on new car loans taken after 2024 may be deductible – even if you don’t itemize. Eligible vehicles include new cars, SUVs, pickups, vans, or motorcycles under 14,000 pounds, assembled in the U.S. You can deduct up to $10,000 per year from 2025–2028, but the benefit phases out for higher-income taxpayers (starting at $100,000 MAGI for singles, $200,000 for married couples filing jointly).
3. Student loan interest
You can deduct up to $2,500 of interest on qualified student loans for tuition, room and board, and related education expenses. No itemizing required. The deduction phases out in 2025 for singles with MAGI over $85,000 ($175,000 for joint filers) and disappears completely above $100,000 ($205,000 joint). Dependents aren’t eligible, and married taxpayers must file jointly to claim it.
4. Investment interest
Interest on money borrowed to invest in taxable assets, like margin loans for stocks, may be deductible. You cannot deduct interest on investments that generate tax-exempt income, like municipal bonds. Your deduction is limited to net investment income, which includes taxable interest, non-qualified dividends, and short-term capital gains (long-term gains generally excluded unless you elect otherwise). Any excess interest carries forward to future years.
What interest can you deduct?
Wondering which interest deductions you can claim on your 2025 return? Contact us. We can help calculate your potential deductions and suggest strategies to maximize benefits when filing your 2026 return next year.
