4 Types of Interest You to Deduct

Personal interest is usually not deductible on federal income taxes, but there are key exceptions. Here are the main types of interest taxpayers can consider deducting.

1. Mortgage Interest

Mortgage interest is one of the most frequent tax deductions if you choose to itemize instead of taking the standard deduction. Generally, you can deduct interest paid on loans taken out to buy, build, or significantly improve your main residence as well as a second home. You may also be able to deduct points paid on a loan for your primary residence.

Under current law, the maximum amount of mortgage debt eligible for deduction is $750,000 for loans taken after December 15, 2017, with certain exceptions. Starting in 2026, premiums for mortgage insurance will count as deductible mortgage interest, but this benefit won't apply to tax returns filed for 2025.

2. Auto Loan Interest

A new rule lets eligible taxpayers deduct interest paid on certain vehicle loans after 2024, even if they don’t itemize deductions. This applies to qualifying new cars, SUVs, vans, and motorcycles weighing less than 14,000 pounds, and is available from 2025 to 2028. Taxpayers may be able to deduct up to $10,000 in interest each year, depending on specific requirements.

Key things to know:

• The vehicle must undergo final assembly in the United States

• The deduction phases out starting at $100,000 of modified adjusted gross income (MAGI) ($200,000 for joint filers)

• It’s fully phased out at $150,000 ($250,000 for joint filers)

3. Student Loan Interest

Individuals repaying student loans may qualify to deduct up to $2,500 in interest annually without the necessity of itemizing deductions.

To be eligible, the loan must be a qualified education loan utilized for expenses such as tuition, room and board, and other related costs associated with post-secondary education, including specific vocational and graduate programs.

For 2025:

• The deduction begins to phase out at $85,000 of MAGI ($175,000 for joint filers)

• It’s eliminated at $100,000 ($205,000 for joint filers)

• Married taxpayers must file jointly to qualify

• Dependents claimed on another return aren’t eligible

4. Investment Interest

Interest on loans used to buy taxable investments, like margin loans for securities, may be deductible. However, interest related to tax-exempt income (such as municipal bonds) is not deductible.

The deduction is capped by your net investment income, which typically includes taxable interest, nonqualified dividends, and short-term capital gains, minus related expenses. If investment interest exceeds net investment income, the unused amount can be carried forward to future years.

Ready to Deduct?

Interest deductions can add up, but eligibility depends on your specific financial situation, income levels, and whether you itemize.

If you’re unsure what applies to you, it’s worth taking a closer look. A proactive approach now can help you maximize your deductions when it’s time to file.