How High-Income Taxpayers Can Still Benefit from Mortgage and Auto Loan Interest Deductions After the OBBBA

Signed into law in July 2025, the One Big Beautiful Bill Act (OBBBA) has redefined what high-income individuals can claim on their tax returns. While some deductions have been limited, others offer new planning opportunities. Here’s what you need to know.

A new law, unexpected implications

You may have heard that the OBBBA closed loopholes. But what it really did was introduce a sharper line between what’s deductible and what’s not when it comes to interest expenses. If you’re a high-net-worth individual with one or more homes, or if you finance large personal assets like vehicles, these changes deserve a closer look.

The OBBBA made the mortgage interest deduction cap of $750,000 permanent, ending speculation that the pre-2018 cap of $1 million might return. At the same time, it added a new (but narrow) deduction for auto loan interest tied to qualifying U.S.-assembled vehicles.

These changes might seem modest at first glance. But for high-income filers, especially those in the $700,000+ taxable income range, the fine print matters more than ever. Some deductions shrink, others survive and a few new ones appear.

Understanding how these deductions interact with your financial profile can prevent lost opportunities and tax-time surprises. That’s where a proactive strategy comes into play.

Understanding the OBBBA’s itemized deduction cap

Let’s begin with one of the most misunderstood changes in the OBBBA: the new limitation on itemized deductions. Contrary to some early media summaries, the law does not impose a flat 80% cap or phase out deductions starting at $400,000 or $500,000 of income.

Here’s what the law actually says: “Beginning with tax year 2026, your itemized deductions may be reduced if your taxable income exceeds the threshold for the 37% tax bracket.”

And how much is the reduction? The law sets it at 2/37 of the lesser of:

1. Your total itemized deductions, or
2. The amount of your taxable income above the 37% bracket threshold.

That equates to a reduction of roughly 5.405% on a portion of your deductions, not a full-scale wipeout.

Let’s say you’re filing jointly and your 2026 taxable income is $1 million. You have $120,000 in itemized deductions. Since you’re $268,800 above the 37% bracket threshold, the deduction reduction equals:

• Lesser of: $120,000 (your deductions) or $268,800 (excess income)
• Multiply by 2/37 → $6,486 lost in deductions

So despite being well into the high-income bracket, you’d still retain most of your deductions.

It’s a relatively modest haircut but one that adds up over time. Especially when you factor in the already-capped state and local tax (SALT) deductions and the mortgage cap, which we’ll cover next.

The mortgage interest cap: Permanently set at $750,000

The mortgage interest deduction has long been a focus for high-net-worth taxpayers, especially those with multiple homes or financing strategies involving large loan balances. The Tax Cuts and Jobs Act of 2017 had lowered the cap on deductible mortgage interest from $1 million to $750,000 for joint filers, with that change originally set to expire in 2025. The OBBBA made this cap permanent.

That means interest on mortgage debt above $750,000 for joint filers (or $375,000 for single filers) is no longer deductible at the federal level, with no expiration date in sight. For high earners financing primary residences, second homes or vacation properties, this solidifies a key limitation in long-term tax planning.

So how can high-income earners adjust? A key step is to coordinate mortgage strategies with overall financial goals. For example, if you are financing a second home or refinancing an existing property, it may make sense to limit the loan size to the deductible threshold. Alternatively, consider whether refinancing at a lower balance or over a shorter term yields more savings than stretching interest payments over time with limited deductibility.

For those with significant estates, this is also a good time to revisit gift strategies, charitable giving options or estate tax thresholds in tandem with your mortgage structure. A coordinated approach can help preserve wealth while navigating the new limits.

For a more holistic strategy, review your estate and real property holdings with your advisors. You can also explore our estate planning services to see how James Moore helps high-net-worth individuals protect their legacy.

Auto loan interest deduction: A new opportunity — but only for some

One of the most talked-about surprises in the OBBBA is the introduction of a personal auto loan interest deduction. Starting in 2025 and running through 2028, taxpayers can deduct up to $10,000 in interest on loans used to purchase qualifying vehicles, provided those vehicles are assembled in the United States.

This is not a business deduction. In fact, interest on business-use vehicles has always been deductible as an ordinary business expense. What’s new here is the deduction for certain personal-use vehicles, specifically for individuals purchasing eligible cars that meet the federal final assembly rules.

To qualify, the vehicle must:

• Be purchased between Jan. 1, 2025, and Dec. 31, 2028
• Be assembled in the United States
• Be financed through a qualified auto loan
• Be used for personal purposes, not claimed as a business asset

There is also a modified adjusted gross income (MAGI) cap of $100,000 or less for single filers and $200,000 or less for married couples filing jointly. For every $1,000 of income over those thresholds, the deduction is reduced by $200. Those with incomes over $150,000 (single filers) and $250,000 (joint married filers) are not eligible for the auto loan interest deduction.

To verify eligibility, the Department of Energy maintains a VIN lookup tool where buyers can confirm whether the make, model and trim level meet the assembly requirements. Since vehicle models often have variations by trim or year, it’s important to confirm before finalizing the purchase.

This deduction presents an opportunity for taxpayers who finance higher-end electric or hybrid vehicles assembled domestically. But keep in mind, the deduction is capped at $10,000 of interest (not vehicle cost) and it doesn’t stack with business vehicle deductions. If the vehicle is leased, or financed through a business, the new provision doesn’t apply.

If you’re considering a qualifying vehicle, it may be worthwhile to time your purchase within the 2025–2028 window and structure the financing to maximize the interest deduction. Just remember, documentation is essential. Retain your loan agreement, purchase date and VIN confirmation as part of your annual tax records.

Practical tax planning tips for high-income earners

With the mortgage interest cap fixed and a new auto loan deduction available for a limited time, high-income taxpayers should approach these updates as opportunities to fine-tune their tax strategy. While the recent law changes may seem restrictive, there are still several ways to maintain tax efficiency with careful planning.

One common approach is deduction bundling. For those who consistently give to charitable organizations, grouping contributions into a single tax year can push itemized deductions higher, making them more impactful. For example, instead of donating $25,000 annually, consider contributing $50,000 every other year. This strategy can create a larger deduction in high-income years and help offset other lost deduction value under the new itemized cap.

Timing also plays a key role. If you’re planning to purchase or refinance a home, consider whether a smaller loan or shorter term will allow you to maximize the deductible portion of your mortgage interest while reducing long-term costs. Since the $750,000 cap is permanent, there’s no value in exceeding it unless the financing serves a specific strategic goal.

Similarly, if you’re considering purchasing a qualifying personal-use vehicle, the timing of your loan matters. The OBBBA window for deducting auto loan interest closes at the end of 2028. Planning major purchases or replacements during this period may increase your total deductions, especially if paired with other itemized expenses in the same year.

It’s also important to keep real estate and asset-related decisions aligned with your broader financial picture. Mortgage debt, personal loans, charitable giving and asset purchases all affect your tax return differently. Understanding the interactions among these items can help you plan more effectively.

For a full review of your individual tax situation, our individual tax services team offers personalized, year-round support. We’re here to help you make the most of what current tax law allows.

What’s not deductible, and common pitfalls to avoid

While the OBBBA introduces some new planning opportunities, it also adds complexity (and a few traps that are easy to fall into without proper guidance).

First, let’s clear up a common misunderstanding: interest on business-use vehicles remains deductible as a regular operating expense under long-standing tax rules. As stated earlier, the new $10,000 deduction under the OBBBA is aimed solely at personal-use vehicles meeting specific eligibility requirements. Claiming this deduction on a business asset could trigger questions during an audit or even denial of the deduction.

Another misstep we frequently see is the assumption that changing how a personal home is titled (such as moving it into a revocable trust or LLC) will allow the taxpayer to bypass the $750,000 mortgage interest cap. In reality, this does not change the tax treatment unless the property is used as a rental or in an income-generating activity. Simply retitling personal property without a business purpose or material use change offers no advantage and may even complicate estate or liability planning unnecessarily.

Likewise, it’s worth noting that personal loan interest — including interest from credit cards or home equity lines used for personal expenses — remains non-deductible. Only loans used for qualified improvements to your primary or secondary residence may qualify under the home acquisition debt rules.

One final caution: Don’t assume state tax law will follow federal provisions. While the OBBBA governs federal deductions, each state sets its own rules on mortgage interest, vehicle deductions and overall conformity with federal law. If you live in a high-tax state or own property across multiple states, these differences can impact your deductions at the state level.

That’s why we recommend speaking with a tax advisor who understands not just the federal code but also multistate compliance. Small errors here can lead to large headaches later.

Make smarter financial moves with strategic tax planning

The One Big Beautiful Bill Act brings both limits and possibilities. By locking in the mortgage interest deduction cap and adding a new window for personal auto loan interest deductions, the law reshapes how high-income taxpayers approach everyday financing decisions.

But these changes don’t eliminate your planning options; they simply raise the bar. Understanding how your income, deductions and timing interact allows you to make smart financial decisions that still yield results under the updated tax code.

Our team at James Moore is here to help you make the most of what today’s tax laws allow. Whether you’re buying a second home, planning a vehicle purchase or just want to ensure your deductions are secure, we’ll tailor a strategy around your unique goals. The right planning today can pay off in peace of mind (and lower tax bills) tomorrow.

Contact a James Moore professional to review your tax strategy and make sure you’re ready for the changes ahead.