Car Loan Interest, Tips, & Overtime

New Tax Breaks for Car Loan Interest, Tips & Overtime — What You Need to Know 

Big changes are here for the upcoming tax seasons: under the new tax law (One Big Beautiful Bill Act) you’ll have two brand‑new deductions:

• Car Loan Interest Deduction: If you take out a loan after December 31, 2024 to buy a new personal vehicle that meets the eligibility rules (e.g., final assembly in the U.S.), you may now deduct up to $10,000 per year in interest for tax years 2025‑2028.

• Tips & Overtime Deductions: Starting for tax year 2025 you may deduct:

  • Up to $25,000 of qualified tipped income (for eligible occupations)

  • Up to $12,500 (single) or $25,000 (married filing jointly) of “qualified overtime compensation” (the extra half‑time portion above regular pay)

 Effective Dates: These deductions apply for tax years 2025 through 2028.

Important Details to Know:

• For the car interest deduction: the vehicle must be new (original use starts with you), for personal use (not business), and assembled in the U.S.

• For tips/overtime: Your occupation must be one that “customarily and regularly” receives tips; reporting rules apply.

• Phase‑outs apply based on modified adjusted gross income (MAGI).

• These are deductions, not tax credits — they reduce taxable income, not just your tax liability.

At NorthWest CPA, we’re ready to help you understand how these changes could affect you or your business, and to ensure you’re prepared when Filing season arrives.