How can you deduct interest expense on your 2025 individual federal income tax return and beyond? Let us count the ways. Although personal interest expense isn’t deductible in general — for example, you can’t deduct credit card interest — there are four types of interest expense that are deductible if you meet the requirements.

As you’ll see, some types of deductible interest expense are subject to income-based phaseouts, and you can write off a couple of them only if you itemize deductions rather than claiming the standard deduction. Here’s an overview of the “big four.”

1. Mortgage Interest

If you itemize, you can generally write off mortgage interest paid on your principal residence and one other home, such as a vacation home, within specified limits. To qualify for the deduction, though, you must be legally obligated to pay the mortgage secured by a qualified residence.

There are two primary categories of mortgage interest debt. First, acquisition debt is incurred to buy, build or substantially improve a qualified residence. Before the Tax Cuts and Jobs Act (TCJA), acquisition debt was limited to interest paid on the first $1 million of debt. The TCJA temporarily lowered that threshold to $750,000 ($375,000 for married individuals who file separately). The One Big Beautiful Bill Act (OBBBA), enacted in July 2025, made the lower threshold permanent. (Note: Certain existing home mortgage debt may be “grandfathered” under the prior-law rules. Contact your tax advisor for further details.)

Second, financing secured by your residence that isn’t acquisition debt is generally treated as home equity debt, but it may still qualify as acquisition debt eligible for the mortgage interest deduction in certain situations. Home equity debt includes most lines of credit as well as home equity loans and similar arrangements. Before the TCJA, you could deduct interest paid on up to the first $100,000 of home equity debt used for any purpose, including paying off credit cards or buying a car. However, the TCJA temporarily suspended this deduction, and the OBBBA permanently eliminated it. So, interest on home equity loans generally isn’t deductible.

But there’s an exception for proceeds that are used to buy, build or substantially improve the home that secures the loan. In that case, the portion of the loan used for substantial home improvements — such as building an addition, finishing a basement or attic, or installing an in-ground pool — will likely be treated as acquisition debt, making the related interest potentially deductible as mortgage interest expense within the applicable limits.

2. Investment Interest

If you borrow funds to buy assets held for investment purposes (such as margin debt used to buy securities), interest paid on the loan is generally deductible as long as you itemize. However, the amount you can deduct is generally limited to your annual net investment income, with any excess carrying over to the next year and years thereafter until used up.

For this purpose, net investment income is defined more narrowly than you might expect. Generally, it includes taxable interest, net short-term capital gains and nonqualified dividends — but not long-term capital gains or qualified dividends — reduced by allowable investment expenses (which are also limited under federal tax law). The maximum tax rate on long-term capital gains and qualified dividends is generally 15% (20% for higher-income taxpayers), compared with ordinary income, which is taxed at rates as high as 37%.

You may elect to treat net long-term capital gains or qualified dividends as investment income in order to deduct more of your investment interest expense. But if you do, that portion of the long-term capital gain or dividend is taxed at ordinary-income rates. Be sure to involve your tax advisor when pursuing this strategy.

Important: Interest on debt used to buy securities that pay tax-exempt income, such as municipal bonds, isn’t deductible.

3. Student Loan Interest

Interest on student loans used to fund qualified higher education expenses may be deducted on your individual return, up to an annual limit. And this holds true whether or not you itemize. Qualified expenses include tuition, room and board, books, and eligible supplies.

The maximum deduction of $2,500 isn’t indexed for inflation and phases out for moderate- to high-income taxpayers. However, the phaseout thresholds are indexed annually. For 2025 returns, the write-off begins to phase out at $85,000 of modified adjusted gross income (MAGI) for single and head-of-household filers ($170,000 for married couples filing jointly). The deduction completely phases out at $100,000 of MAGI ($200,000 for joint filers). (Married couples filing separately aren’t eligible for the student loan interest deduction.)

Important: If your employer pays some of your student loan debt, you may be eligible to exclude up to $5,250 from income. (Student loan interest payments for which the exclusion is allowable can’t be deducted.) The OBBBA made this tax break permanent, and the limit will be annually adjusted for inflation after 2026.

4. Auto Loan Interest

The OBBBA introduced a new interest expense deduction, which is available for itemizers and nonitemizers alike. Beginning with the 2025 tax year, you may write off up to $10,000 of annual interest paid on qualified passenger vehicle loans originated after December 31, 2024. However, the deduction begins to phase out at $100,000 of MAGI ($200,000 for joint filers). The tax break phases out completely at $150,000 of MAGI ($250,000 for joint filers).

Important: The $10,000 limit applies per tax return; joint filers can’t claim a $20,000 deduction.

Qualified vehicles include cars, minivans, vans, SUVs, pickup trucks and motorcycles with gross vehicle weight ratings of less than 14,000 pounds that undergo final assembly in the United States. Used and leased vehicles are ineligible. The deduction is currently scheduled to expire after the 2028 tax year.

Claiming Your Breaks

Bear in mind that additional rules may affect which interest expense you can deduct and how much you can deduct. Consult with your tax advisor for help identifying the tax breaks that apply to you and claiming them on your return.