Emily Zeko

CPA | Senior Tax Accountant

The One Big Beautiful Bill Act was signed into law on July 4^th, introducing significant tax changes that could directly affect your 2025 tax return. Two key deductions that you will want to take advantage of starting in 2025 are the new interest deduction on auto loans, and the increased state and local tax (SALT) deduction. Below we break down exactly how each deduction works, who qualifies and how they may impact your overall tax strategy.

New Auto Loan Interest Deduction (Starting in 2025)

Beginning January 1, 2025, individual taxpayers may deduct up to $10,000 of interest paid on qualifying auto loans.

To be eligible for this deduction, autos must:

• Be new (purchased after December 31, 2024)
• Be intended for personal use
• Be considered “made in the USA.” Autos whose final assembly occurred within the United States.
• Weigh less than 14,000 pounds
• Have a valid VIN reported on your tax return

Loans That Do Not Qualify

This deduction does not apply to:

• Loans to finance sales of vehicle fleets and commercial vehicles
• Lease financing loans
• Loans for vehicles with a salvage title or intended for scrap or parts
• Loans from related parties

Income Phaseout Rules

The deduction phases out for taxpayers with:

• Modified adjusted gross income (AGI) above $100k (single)  
• Modified adjusted grow income (AGI) over $200k (married filing jointly)

Phaseout formula: The $10,000 maximum deduction is reduced by 20% of the amount your income exceeds the applicable modified AGI.

Example:

If you are single and have a modified AGI of $120,000, you exceed the threshold by $20,000.  

• Phaseout = 20% x $20,000= $4,000.
• Maximum deduction = $10,000 – $4,000 = $6,000

Expanded State and Local Tax (SALT) Itemized Deduction

For tax years beginning after December 31, 2024, the SALT deduction cap increases from $10,000 to $40,000 for individual taxpayers who itemize.

Who Qualifies for the Full Deduction?

Full deduction applies if your modified AGI is below:  

• $500,000 for joint filers
• $250,000 for separate filers

Beginning in 2026, the cap will increase by 1% annually through 2029. The $40,000 maximum deduction is reduced by 30% of the amount your income exceeds the applicable modified AGI.

Example:

A couple filing jointly with a modified AGI in 2025 of $510,000 exceeds the limit by $10,000.  

• Phaseout = 30% x $10,000 = $3,000
• Maximum deduction =$40,000 – $3,000= $37,000

This deduction will return to a $10,000 limitation in 2030.

Potential Impact on PTET Credits

Many states have introduced Passthrough Entity Tax (PTET) credits to bypass the old $10,000 SALT cap. With the cap now higher, states may reconsider their PTET policies, potentially impacting how your state taxes are calculated if you own a partnership or S-corporation.

What These Changes Mean for You

• If you have an auto loan that may qualify for the interest deduction, talk to your tax advisor.
• If you live in a high-tax state the expanded SALT deduction may make it easier to itemize your deductions. Your tax advisor will keep you up to date on any impact this may have on the state taxes for you or your business. The deduction may also push you to be able to itemize your deductions, so your tax advisor may start asking questions about other potential deductions you were previously unable to take.
• If you receive PTET credits, your state may adjust its tax rules, so stay in close contact with your tax advisor.

Next Steps

If you have questions about these new deductions or any of the provisions in the OBBB Act, the team at Cray Kaiser is ready to help you understand the potential impact on your personal or business taxes. You can contact us here or call us at (630) 953-4900.