In most cases, personal interest expenses cannot be deducted on your federal tax return. However, there are several important exceptions that may allow taxpayers to claim deductions for certain types of interest.
Currently, four types of interest expenses may qualify for deductions under specific circumstances. One of these opportunities was recently introduced under the One Big Beautiful Bill Act (OBBBA), which became law in 2025.
Below are four types of interest expenses that could potentially reduce your taxable income.
1. Mortgage Interest
One of the most widely known tax deductions is the home mortgage interest deduction. Taxpayers who choose to itemize deductions instead of taking the standard deduction may be able to deduct interest paid on qualifying mortgage debt.
Typically, you can deduct interest on loans used to purchase, build, or substantially improve your primary residence or a second home. In addition, points paid on a mortgage for your primary residence may also be deductible.
The OBBBA permanently extended the mortgage interest limits introduced by the Tax Cuts and Jobs Act (TCJA). As a result, the mortgage debt eligible for interest deductions remains capped at $750,000 for loans taken out after December 15, 2017, with limited exceptions.
Another upcoming change involves mortgage insurance premiums. Under the new law, these premiums will generally be treated as deductible mortgage interest. However, this provision does not take effect until the 2026 tax year, meaning these premiums cannot be deducted on your 2025 return.
2. Auto Loan Interest
A new deduction introduced by the OBBBA allows certain taxpayers to deduct interest paid on auto loans, even if they do not itemize deductions.
This applies to loans taken out after 2024 to purchase a qualifying new vehicle, including:
- Cars
- Minivans
- Vans
- SUVs
- Pickup trucks
- Motorcycles
To qualify, the vehicle must have a gross vehicle weight rating (GVWR) under 14,000 pounds.
From 2025 through 2028, taxpayers may be able to deduct up to $10,000 in auto loan interest per year, depending on eligibility.
One key requirement is that the vehicle’s final assembly must occur in the United States.
Income limits also apply. The deduction begins to phase out when modified adjusted gross income (MAGI) reaches:
- $100,000 for single filers
- $200,000 for married couples filing jointly
The deduction is completely eliminated once MAGI reaches:
- $150,000 for single filers
- $250,000 for joint filers
3. Student Loan Interest
Interest paid on student loans may also qualify for a tax deduction. Unlike mortgage interest, this deduction does not require itemizing.
Eligible taxpayers can deduct up to $2,500 per year in student loan interest.
The loan must be a qualified education loan, meaning it was used to cover eligible education expenses such as:
- Tuition
- Room and board
- Books and supplies
- Other required educational costs
The student must attend an eligible post-secondary institution, which may include certain vocational schools or graduate programs.
Income limits apply. For 2025, the deduction begins to phase out when MAGI exceeds:
- $85,000 for single filers
- $175,000 for married couples filing jointly
The deduction becomes unavailable once MAGI reaches:
- $100,000 for single filers
- $205,000 for joint filers
Additionally, married taxpayers must file jointly to claim this deduction, and individuals who can be claimed as a dependent on another taxpayer’s return are not eligible.
4. Investment Interest
Interest incurred to purchase or carry investments may also be deductible. This typically applies to interest on borrowed funds used to acquire investment assets, such as margin loans used to buy securities.
However, the deduction does not apply to interest related to tax-exempt investments. For example, if you borrow money to purchase municipal bonds, which generate tax-free income, the interest expense cannot be deducted.
Investment interest deductions are also subject to an important limitation. The amount you can deduct is limited to your net investment income.
For this purpose, net investment income generally includes:
- Taxable interest
- Nonqualified dividends
- Net short-term capital gains
These amounts are reduced by other investment-related expenses.
Qualified dividends and long-term capital gains are generally excluded from this calculation unless you elect to treat them as ordinary investment income.
If your investment interest exceeds your net investment income for the year, the unused portion isn’t lost. Instead, it carries forward to future years, when it may be deductible if sufficient investment income exists.
Determine Which Interest Deductions You Qualify For
Interest expense deductions can provide valuable tax savings, but each deduction has its own eligibility requirements and income limits.
If you’re unsure whether you qualify to deduct interest on your 2025 tax return, consider speaking with a tax professional. They can review your situation, calculate your potential deductions, and help you plan strategies to maximize deductions for your 2026 filing year.