Implementation of OBBBA deductions for auto loan interest, seniors, tips and overtime compensation

The One Big Beautiful Bill Act (OBBBA) was enacted in July 2025 and contained several new tax deductions that we have previously highlighted for you. This month, we want to focus on the specifics of four of the new tax deductions that may be available to you.

Auto Loan Interest Deduction

This is a temporary tax deduction available for qualified vehicles purchased in tax years 2025 through 2028. The key details for you to be aware of are:

• You can deduct up to $10,000 in interest paid annually.
• The loans must have originated after December 31, 2024, and before January 1, 2029.
• This is an “above-the-line” deduction, meaning you do not have to itemize your deductions to claim the deduction.
• The deduction is subject to Modified Adjusted Gross Income phase-outs.
• The vehicle must be a new vehicle, gross vehicle weight must be under 14,000 pounds, and final assembly must have occurred in the United States. VIN numbers starting with a “1”,”4”, or “5” typically indicate U.S. assembly.
• Commercial vehicles do not qualify, personal use only.

Qualified Tips Deduction

Qualified tips deduction provides a temporary tax deduction available for tax years 2025 through 2028.

• Deductible amount is $25,000 annually per individual. The tips must be received from an occupation that customarily and regularly receives tips, and the tips must be voluntary.
• The deduction is subject to Modified Adjusted Gross Income phase-outs.
• This is an “above-the-line” deduction, meaning you do not have to itemize your deductions to claim the deduction.
• The tips are still subject to Social Security, Medicare, Ohio, and local taxes. As of this writing, Ohio has pending legislation that would follow IRS rules for deducting tips

Qualified Overtime Pay

Provides a temporary tax deduction available for overtime pay for tax years 2025 through 2028. 

• Deductible up to $12,500 annually per individual, or $25,000 for those married, filing jointly.
• The overtime pay must be required under the federal Fair Labor Standards Act. 
• Only the premium portion of the overtime pay (the “half” in time-and-a-half pay) qualifies for the deduction.
• The deduction is subject to Modified Adjusted Gross Income phase-outs.
• This is an “above-the-line” deduction, meaning you do not have to itemize your deductions to claim the deduction.
• Employer reporting in this transition year will be sketchy. Gather your 2025 pay stubs, earnings statements, or other documentation to determine your deduction. Reporting in 2026 should be a part of your annual W-2.

Senior Tax Deduction

This provides a temporary tax deduction available for taxpayers 65 or older for tax years 2025 through 2028.

• Deduction is $6,000 per individual.
• The deduction is subject to Modified Adjusted Gross Income phase-outs.
• This is an “above-the-line” deduction, meaning you do not have to itemize your deductions to claim the deduction.

We hope you find this information helpful as we enter the new tax filing season. If you have questions regarding your personal situation, please contact our office.