4 Interest Expenses You Can Actually Deduct on Your Taxes

Personal interest expense generally isn't deductible for federal tax purposes. However, the tax code has some valuable exceptions that can help you keep more money in your pocket. Recent legislation, including the One Big Beautiful Bill Act (OBBBA) signed into law in 2025, has introduced new opportunities to lower your tax liability.

At SD Mayer, we want to help you make smart financial decisions without getting bogged down by complicated tax jargon. Let's explore four types of interest expenses that might qualify as tax deductions this year.

The Big Four Deductible Interest Expenses

Navigating tax rules can feel overwhelming, but understanding these key deductions can lead to significant savings.

1. Mortgage interest

Home mortgage interest is perhaps the most well-known deduction available, provided you itemize your deductions instead of taking the standard deduction. You can generally deduct interest on debt incurred to purchase, build, or improve your primary residence and one secondary residence. Points paid on your principal residence might also qualify.

Keep in mind that the OBBBA made the Tax Cuts and Jobs Act’s reduction of the mortgage debt limit permanent, capping it at $750,000 for debt incurred after December 15, 2017 (with a few exceptions). The OBBBA also made mortgage insurance premiums deductible as mortgage interest, but this specific change doesn't take effect until the 2026 tax year, meaning you cannot claim it on your 2025 return.

2. Auto loan interest

Here is a brand-new break under the OBBBA. Eligible individuals can now deduct some or all of the interest paid on a loan taken out after 2024 to buy a qualifying new car, minivan, SUV, pickup truck, or motorcycle. The vehicle must have a gross weight rating under 14,000 pounds, and its "final assembly" must occur in the United States.

You don't even need to itemize to claim this one. For the years 2025 through 2028, you could potentially deduct up to $10,000 annually. However, this deduction phases out starting at $100,000 of modified adjusted gross income (MAGI) for single filers, or $200,000 for married couples filing jointly. It disappears completely once MAGI reaches $150,000 for single filers or $250,000 for joint filers.

3. Student loan interest

If you are paying off student loans, you might be able to deduct up to $2,500 of that interest without needing to itemize. The debt must be a "qualified education loan" used to pay for tuition, room and board, and related expenses at a recognized post-high-school institution, including certain vocational and post-graduate programs.

For 2025, the deduction begins phasing out when a single taxpayer's MAGI exceeds $85,000, and it becomes unavailable over $100,000. For married couples filing jointly, the phase-out starts at $175,000 and ends at $205,000. Note that married taxpayers must file jointly to claim this, and you cannot claim it if someone else claims you as a dependent.

4. Investment interest

Interest on debt used to buy investment assets—like margin debt used to purchase securities—can also be deductible. The catch is that you cannot deduct interest incurred to produce tax-exempt income, such as municipal bonds.

More importantly, your investment interest deduction is limited to your net investment income for the year. This generally includes taxable interest, nonqualified dividends, and net short-term capital gains, minus other investment expenses. Qualified dividends and long-term capital gains are usually excluded unless you elect to treat them as ordinary income subject to higher tax rates. Any disallowed interest can be carried forward to future years when you have excess net investment income.

Ready to Maximize Your Tax Savings?

Figuring out exactly what you can and cannot deduct takes a bit of strategy. If you are wondering how these rules apply to your 2025 tax return, the team at SD Mayer is here to help. We are passionate about helping you uncover innovative ways to save time and reduce costs.Reach out to us today, and let's build a plan to maximize your deductions and keep your business moving forward.