Interest rates tend to move up and down over time, but the rules for deducting interest expenses on your taxes have stayed mostly the same—unless Congress steps in. For most people, knowing what’s deductible and what isn’t can be confusing. That’s where understanding the basics—and reaching out to a CPA firm near me—can make all the difference. Whether you’re a homeowner, investor, business owner, or student, knowing how interest deductions work can help you make the most of your tax return.
Let’s take a closer look at how different types of interest are treated under current tax law, and where you may have opportunities to save.
1. Mortgage Interest
For many taxpayers who itemize deductions, mortgage interest is one of the largest potential write-offs. To qualify, the loan must be secured by your main home or a second home, such as a vacation property. You also have to be legally responsible for repaying the mortgage—meaning you can’t deduct interest on someone else’s loan.
There are two key types of mortgage debt for tax purposes:
Acquisition Debt
This is money borrowed to buy, build, or significantly improve a qualified home. Current rules allow a deduction for interest paid on up to $750,000 of acquisition debt for loans made after December 15, 2017. (Older loans are “grandfathered in” under the prior $1 million limit.)
Home Equity Debt
This includes any other mortgage debt, such as a home equity loan or line of credit. In most cases, the interest on home equity debt is not deductible—unless the funds are used to substantially improve your home. So, if you use a home equity loan to remodel your kitchen or add a room, that interest may qualify as acquisition debt.
Because home financing can get complicated quickly, consulting with a CPA firm near me can help you determine what qualifies before you file your taxes.
2. Investment Interest
If you borrow money to invest—for example, to buy stocks or other income-producing property—you may be able to deduct the interest as an investment interest expense. However, there’s a catch: this deduction is limited to the amount of your net investment income for the year. Any excess interest can be carried forward to future years.
“Net investment income” typically includes interest income, annuities, and royalties. But here’s the tricky part: long-term capital gains and qualified dividends don’t count unless you agree to forfeit their lower tax rate. The top rate for long-term gains is 20% (15% for most taxpayers), so you’ll want to think carefully before making that election.
Investment interest deductions often involve nuanced decisions that can affect your portfolio. This is an area where guidance from a CPA firm near me can ensure you’re optimizing your tax strategy without giving up valuable benefits.
3. Business Interest
For years, businesses could deduct 100% of their interest expenses. Today, the deduction is capped at 30% of adjusted taxable income (ATI)—a measure of business income before interest, taxes, depreciation, and certain other adjustments.
Here’s what counts toward ATI:
- Business income before taxes
- Minus business interest income and expenses
- Minus any net operating losses
- Minus the qualified business income (QBI) deduction
Before 2022, businesses could also add back depreciation and amortization, but that provision expired—meaning some companies may see their deductible interest shrink.
However, small businesses with average annual gross receipts of $31 million or less (for 2025) are exempt from this 30% limit. That’s good news for local companies who want to deduct their full interest expense without complex calculations.
If you’re unsure whether your business qualifies for this exemption, reaching out to a CPA firm near me is a smart step. Professionals can help review your books, calculate ATI, and make sure you’re taking full advantage of the available deductions.
4. Student Loan Interest
Paying off student loans can be a long process, but there’s some relief built into the tax code. You can deduct up to $2,500 of interest paid on qualified student loans each year—whether or not you itemize deductions. This deduction is taken “above the line,” meaning it reduces your taxable income directly.
To qualify:
- You must be legally responsible for the loan (your name is on the paperwork).
- The loan must have been taken out solely for qualified education expenses, such as tuition, room and board, books, supplies, and transportation.
This deduction phases out at higher income levels, based on your modified adjusted gross income (MAGI). If you’re married and file jointly, both you and your spouse can each take advantage of this benefit if you meet the eligibility criteria.
A CPA firm near me can help you understand how much student loan interest you can claim and whether you’re nearing the phase-out range.
5. Personal Interest
This is the “everything else” category—and in most cases, it’s not deductible. Personal interest includes credit card interest, auto loans, or other debts used for personal spending. So, if you use a credit card for vacations or home décor, the interest on that balance doesn’t reduce your taxable income.
However, there’s one exception worth noting. Starting in 2025, taxpayers may claim a new deduction for interest on qualified auto loans—up to $10,000 over four years (2025–2028). To qualify, the vehicle must have its final assembly in the U.S., and the deduction begins to phase out for taxpayers earning over $100,000 ($200,000 for joint filers). This new rule is designed to encourage domestic vehicle production and provide modest relief for car buyers.
Keeping accurate records of all your interest payments throughout the year can help your accountant identify potential deductions. Even small mistakes—like mixing personal and investment funds in one account—can complicate your tax situation. Keeping funds separate and consulting a CPA firm near me before tax season helps avoid these pitfalls.
Tips for Claiming Interest Deductions
While it might seem straightforward to claim interest on a mortgage or student loan, the rules can be surprisingly detailed. Here are a few practical tips:
- Document everything. Keep copies of loan statements, receipts, and settlement sheets. If the IRS asks for proof, clear documentation makes the process easier.
- Avoid mixing loan proceeds. If you take out multiple loans, keep them in separate accounts to track how the money is used.
- Review annually. Tax laws and thresholds change, and what was deductible last year may not be this year.
- Get professional advice. Partnering with a CPA firm near me ensures your deductions align with the latest regulations and that you’re not missing hidden opportunities.
Why Working With a CPA Firm Near Me Matters
Interest deduction rules are full of fine print, and even a small misstep can cost you money—or attract unnecessary IRS attention. A CPA firm near me can do more than just file your return. They can:
- Review how you’re using borrowed funds and identify deductible interest.
- Analyze whether you’d benefit from itemizing versus taking the standard deduction.
- Advise on how to structure future loans (like home equity lines or business credit) for maximum tax efficiency.
- Help you plan year-round so tax time feels less stressful.
With personalized advice, you can avoid confusion and make confident financial decisions knowing your taxes are handled correctly.
The Bottom Line
Interest expense deductions can provide real tax savings—but only if you understand the categories and limits that apply. Mortgage interest, business interest, and student loan interest each have specific rules, while personal interest generally doesn’t qualify. By staying organized, keeping detailed records, and consulting with a trusted CPA firm near me, you can ensure that you’re claiming every deduction you deserve.
For trusted guidance in navigating tax deductions, financial planning, and year-round accounting support, contact Burton McCumber & Longoria today. Their experienced team can help you make sense of the numbers, reduce your tax burden, and keep your finances on track for the future.