OBBB Act 2025 Personal Interest Deduction: What You Need to Know

Introduction 

The One Big Beautiful Bill Act (OBBB) was signed into law in July 2025. While many parts of the law deal with different areas of taxes, one of the most critical changes is how it treats personal interest deductions. For years, the IRS has followed the same basic rule: most types of personal interest are not deductible. This means people usually cannot claim tax benefits for interest paid on things like personal loans, credit cards, or car loans used for everyday purposes. 

With the OBBB Act, that general rule still applies. However, the law has introduced a new and temporary exception that may benefit many taxpayers. For the first time in a long while, some personal car loan interest can qualify for a deduction. This is unusual because personal interest deductions have always been minimal. The OBBB Act 2025 personal interest deduction is designed to give taxpayers short-term relief while also encouraging the purchase of new vehicles. 

In this blog, we will explain how the new car loan deduction works, the conditions you must meet to qualify, and what types of personal interest remain deductible under the OBBB Act. By the end, you will have a clear picture of how these rules may affect your taxes for 2025 and the years that follow. 

How the New Car Loan Deduction Works 

The OBBB Act gives taxpayers a rare break on personal interest. However, this is available only if it’s tied to a qualifying car loan. To qualify for the OBBB Act 2025 personal interest deduction, you must take out a loan after 2024 to purchase a brand-new passenger car. Also, the car must be assembled in the United States. 

Furthermore, taxpayers can deduct up to $10,000 each year in interest payments, and the deduction is considered above-the-line, which means you can claim it even if you do not itemize your taxes. 

Plus, there are income limits that apply. If your Modified Adjusted Gross Income (MAGI) is over $100,000 as a single filer or over $200,000 as a married couple filing jointly, the deduction begins to phase out. This benefit is temporary and will only apply for tax years 2025 through 2028. Taxpayers who plan ahead can take full advantage of the OBBB Act 2025 personal interest deduction during this limited window. 

Interest You Can and Cannot Deduct Under the OBBB 

The OBBB Act continues the long-standing rule that most types of personal interest are not deductible. This means you cannot deduct: 

• Credit card interest on personal purchases 

• Interest on personal instalment loans 

• Interest paid on loans for cars, boats, or RVs that are not used for business, unless the vehicle qualifies under the new temporary car loan deduction 

• Points or fees connected to tax-free income 

On the other hand, the law did not change much for interest that was already deductible under prior rules. 

• Student loans: You can still deduct up to $2,500 per year in student loan interest, although this benefit phases out at higher income levels. 

• Home mortgages: You can still deduct mortgage interest on up to $750,000 of debt used to buy, build, or improve your primary or second home. The OBBB made this rule permanent while also adding mortgage insurance premiums to the list of deductible costs. 

• Investments: Investment interest expenses are still deductible, but only up to the amount of your net investment income, and you must itemize to claim this deduction. 

• Business loans: Interest on business loans remains deductible. The OBBB made this provision more favorable by expanding the definition of income, which can allow larger deductions for many business owners. 

Understanding the mix of what qualifies and what does not is key to using the OBBB Act 2025 personal interest deduction effectively. 

Read Also: The One Big Beautiful Bill Act: Key Federal Tax Changes for 2025 

How KMK Ventures Can Help 

The OBBB Act has added a new layer of complexity to tax planning, especially around personal interest deductions. Many taxpayers may find it confusing to understand what qualifies and what does not. That’s where KMK Ventures comes in. Our team can: 

• Review your loans and expenses to see if they are eligible for deductions under the OBBB Act 2025 personal interest deduction 

• Help you plan around income limits so you don’t lose out on potential tax savings 

• Guide you on maximizing long-term deductions like mortgage and student loan interest 

• Support both individuals and businesses in aligning their finances with the latest tax reforms 

We act as your trusted partner to help you avoid missing opportunities hidden in the fine print. 

Conclusion 

The OBBB Act has kept most personal interest non-deductible, but it introduced a new, temporary tax break for qualifying new car loans. The OBBB Act 2025 personal interest deduction allows eligible taxpayers to reduce their tax bill by taking advantage of the new rules. At the same time, traditional deductions like mortgage interest, student loans, and business loan interest remain in place, with some provisions made even more favorable. Still unsure what applies to you? That’s where KMK Ventures can help. We simplify the rules, handle the details, and make sure you take full advantage of every deduction available under the new law.