December 2025

New Car Loan Interest Tax Deduction: How It Works

Generally, personal interest expenses aren’t deductible for federal income tax purposes, with the notable exception of home mortgage interest. However, with the passage of the legislation known as the One Big Beautiful Bill Act (OBBBA), a new exception has been introduced. Under this law, some taxpayers may now be eligible to deduct interest paid on car loans. Still, several rules and limitations must be considered before claiming this benefit.

The Specifics

The OBBBA allows qualifying individuals — including those who don’t itemize deductions — to deduct a portion or all of the interest paid on a car loan used to purchase a qualifying passenger vehicle. From 2025 through 2028, the maximum deductible car loan interest is capped at $10,000 per year.

This deduction is subject to income-based phaseouts. For single filers, the phaseout begins at modified adjusted gross income (MAGI) of $100,000 and ends entirely at $150,000. For married couples filing jointly, the phaseout starts at $200,000 and is fully phased out once MAGI reaches $250,000.

Only certain vehicles are eligible. To qualify, the vehicle must be a car, van, minivan, SUV, pickup truck, or motorcycle with a gross vehicle weight rating under 14,000 pounds. It also must be manufactured primarily for driving on public roads, must be new, and must have had its “final assembly” in the United States. The vehicle identification number (VIN) must be reported on your tax return, and U.S.-assembled vehicles have a special VIN designation confirming domestic assembly.

Loan-Related Requirements

To claim the deduction, the car loan must be a first lien loan secured by the eligible vehicle and taken out after 2024. If a qualifying original loan is refinanced, the refinanced loan can still qualify as long as it remains secured by a first lien and its initial balance doesn’t exceed the remaining balance on the original loan.

Interest on loans from certain related parties doesn’t qualify, and leasing arrangements aren’t eligible for this deduction. Taxpayers must also verify the amount of interest paid. Lenders are required to file an information return with the IRS reporting the yearly total, with transitional relief available for 2025.

Final Thoughts

This new deduction may reduce the cost of purchasing a vehicle, but eligibility varies. Consider whether your income falls below the phaseout limits and verify that the vehicle you plan to purchase qualifies. Still, don’t base your buying decisions solely on this deduction. In many cases, opting for a used, foreign-made, or leased vehicle may be more practical, despite the loss of the tax benefit. Also remember that the deduction is scheduled to end after 2028 unless Congress renews it. For guidance, contact the office.

NOL Deductions Offer Relief for Businesses Facing Losses

For income tax purposes, a business loss occurs when a company’s deductions for the year exceed its revenue. Any business — whether newly formed or long established — can experience losses. Fortunately, the net operating loss (NOL) deduction provides a way to turn the sting of a current-year loss into valuable tax savings in future years.

How to Qualify

Businesses with fluctuating income can face tax inequities compared to those with steady earnings. The NOL deduction helps even out those differences by allowing taxpayers to effectively average income and losses over time.

To qualify for the NOL deduction, the loss generally must result from business-related deductions, including Schedule C or F losses or Schedule K-1 losses from partnerships or S corporations. Losses may also stem from casualty and theft events in federally declared disaster areas or from rental property activities reported on Schedule E.

Certain items aren’t included when determining an NOL, such as capital losses exceeding capital gains, gains excluded from the sale of qualified small business stock, nonbusiness deductions that surpass nonbusiness income, the NOL deduction itself, and the Section 199A qualified business income deduction.

Individuals and C corporations can claim NOL deductions. Although partnerships and S corporations can’t claim them at the entity level, partners and shareholders may claim individual NOLs based on their share of business income and deductions.

Limits Apply

An NOL deduction can’t offset more than 80% of taxable income in a given year. Any unused NOL amounts can be carried forward indefinitely. If your NOL carryforward exceeds the taxable income in the year you apply it, you’ll have an NOL carryover — the remaining portion after applying it to modified taxable income. When multiple NOLs exist, they must be applied in chronological order, beginning with the earliest.

“Excess” Business Losses

The Tax Cuts and Jobs Act (TCJA) introduced an excess business loss limitation effective in 2021. It applies to partners and S corporation shareholders after outside basis, at-risk, and passive activity loss limits are considered. Noncorporate taxpayers may offset business losses only against business income and other income up to an inflation-adjusted cap: $313,000 for single filers or $626,000 for joint filers in 2025, dropping to $256,000 and $512,000 in 2026. Excess losses are carried forward as NOLs.

The TCJA originally scheduled this limitation to expire after December 31, 2026, but the Inflation Reduction Act extended it through 2028, and 2025 legislation has made it permanent.

Next Steps

Because the rules surrounding business losses and NOLs are complex, especially when combined with other tax breaks, contact the office for guidance on navigating your options.

Tax Implications of Remote Work Highlighted in Latest Guidance

Remote work provides meaningful advantages for both employers and employees, but it also brings challenges — particularly when it comes to unexpected tax consequences.

State Tax Issues for Employees

When employees live in one state but work for an employer located in another, complex tax questions can arise. States may tax individuals based on their domicile — the state they consider their permanent home — as well as their residency, which is typically defined as being physically present in the state for 183 days or more during the year.

It’s entirely possible for a person to be domiciled in one state while counted as a resident in another. In such cases, both states may tax the same income. Although some states provide credits to avoid double taxation, differences in tax rates may still result in a higher total tax liability.

Tax and Compliance Burdens for Employers

Remote work can also create substantial compliance burdens for employers. When employees are located across multiple states, employers may need to withhold and remit income and payroll taxes in every relevant jurisdiction.

In addition, having employees in another state may create “nexus,” which is a legal connection that subjects a business to that state’s tax rules. Once nexus is established, employers may become responsible for state taxes such as income, franchise, gross receipts, or sales and use taxes.

Managing these multistate obligations can be both time-consuming and costly. The resulting administrative complexity can increase a business’s tax exposure, making proactive planning and professional guidance essential.

Job-Related Expenses

Before 2018, employees who met specific requirements could take a home office deduction. Under current law, this deduction is generally no longer available to employees and applies mainly to self-employed individuals. Employees also usually can’t claim deductions for unreimbursed job-related expenses.

However, employers can reimburse remote workers under an “accountable plan,” which requires employees to substantiate their expenses. When properly structured, these reimbursements are deductible for employers, excluded from the employee’s income, and generally not subject to payroll taxes.

Know the Consequences

Both remote workers and employers must understand the tax implications involved. While it may not always be possible to avoid negative outcomes, being aware of the rules helps set realistic expectations.

High-Low Per Diem Rates Aim to Simplify Travel Expense Reporting

The “high-low” per diem method offers a simplified alternative to reimbursing employees for business travel, eliminating the need to track actual lodging, meal, and incidental expenses. For most locations within the continental United States, the per diem rate for travel occurring between October 1, 2025, and September 30, 2026, is $225. Certain “high-cost” areas qualify for a higher per diem rate of $319, though some locations are considered high-cost only during specific seasons.

Businesses that rely on per diem rates generally aren’t required to obtain receipts from employees. However, employees must still substantiate the time, place, and business purpose of each trip. When reimbursements follow the per diem rules, they’re typically excluded from income and payroll tax withholding and aren’t reported on the employee’s Form W-2. It’s important to note that per diem payments may not be made to individuals who own 10% or more of the business.

Year-End Tax Planning Turns to Accelerated Deductions

If you’ve been taking the standard deduction in recent years, it may be worth reevaluating that approach for 2025. With the expanded state and local tax (SALT) deduction, your total itemized deductions could surpass the standard deduction, making itemizing more advantageous. If that’s the case, you might want to consider accelerating certain deductible expenses into 2025 to maximize your tax benefit. These could include qualified medical and dental costs that exceed 7.5% of your adjusted gross income, as well as home mortgage interest on up to $750,000 of eligible mortgage debt for your primary residence and a second home. Charitable contributions may also increase the value of itemizing. Reviewing these potential deductions now can help you determine the best strategy for the upcoming tax year. Contact the office to discuss whether shifting deductions into 2025 could improve your overall tax position.

Employee Gifts Under Spotlight as Tax Consequences Clarified

The holiday season often inspires employers to express their appreciation by giving gifts to their employees. However, it’s important to understand that different types of gifts may lead to different tax outcomes. Whether an employer provides a gift card, a holiday turkey, or a year-end cash bonus, the IRS has specific rules that determine how each type of gift is treated for tax purposes.

Certain “achievement awards” can be deductible for the employer and tax-free for the employee, but only when they meet IRS requirements, including that the award must consist of tangible personal property. Similarly, “de minimis” gifts — small items of minimal value, such as a traditional holiday turkey — are generally excluded from taxable income. In contrast, year-end bonuses are always considered taxable compensation to the employee, regardless of the intent behind the gift. If you need guidance on the tax treatment of employee gifts, contact the office for assistance.

Conduct a Year-End Financial Clean-Up for a Strong Start

As the year comes to a close, a comprehensive financial clean-up can set your business up for smoother reporting and better decision-making in the new year. Begin by reconciling all bank, credit card, and loan accounts to ensure your balances match external statements. Review outstanding invoices and unpaid bills, writing off uncollectible items or following up where necessary.

Next, verify that all expenses and income are properly categorized, especially items that may impact tax filings—such as asset purchases, owner draws, prepaid expenses, and reimbursable costs. Update depreciation schedules, confirm payroll records, and ensure all W-9s and contractor information are complete ahead of issuing 1099s.

Performing this year-end clean-up not only improves accuracy but also increases tax readiness and strengthens your financial insight. With clean books and organized records, you’ll enter the new year with clarity, confidence, and a solid foundation for planning.