Tax Planning
How to Plan Around the New Overtime and Car-Loan Interest Deductions under the ‘One, Big, Beautiful Bill’
Discover how taxpayers can leverage two significant new deductions—qualified overtime compensation and car loan interest—to reduce taxable income for 2025 through 2028, especially if you’re a high‐earner or frequently work overtime.
By NomadicTax Research Team • 5‐8 min read • November 23, 2025
## Understanding the New Deductions
The One, Big, Beautiful Bill (OBBB), enacted in 2025, introduces **two new deductions** component affecting individual taxpayers through **tax years 2025‐2028**. They are:
- **Qualified overtime compensation deduction**: You may deduct the portion of overtime pay that exceeds your regular rate—think the “half” portion of time‐and‐a‐half that’s mandated by the Fair Labor Standards Act. Annual deduction cap: **$12,500** for single filers, **$25,000** for married filing jointly. Phaseouts begin at **$150,000 MAGI for singles**, **$300,000 joint**. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions?utm_source=openai))
- **Car loan interest deduction**: Interest paid on a car loan of a new, U.S.‐assembled personal vehicle purchased after December 31, 2024. Max deduction **$10,000/year**, with phaseouts starting at **$100,000 MAGI for single**, **$200,000 joint**. Lease payments and used vehicles ineligible. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions?utm_source=openai))
## Immediate Tax Planning Opportunities
| Tax Usual Behavior | Planning Tip under OBBB |
|---|---|
| Working extra hours or taking overtime | Keep accurate payroll records showing overtime compensation separate. Ensure employer pays with the standard “half” overtime portion clearly delineated. If possible, ask employer to allocate it in separate W-2 reporting or another statement. |
| Buying a new U.S.-manufactured vehicle | Time the purchase: since only vehicles purchased **after Dec 31, 2024** qualify, any 2025 purchase of a “qualified” new vehicle may allow this interest deduction. Keep all loan documentation, ensure vehicle meets assembly criteria. |
| High earnings near phaseout levels | Estimate your Modified Adjusted Gross Income (MAGI). If near limits, strategies such as accelerating or deferring income, maximizing retirement or HSA contributions, or adjusting filing status may help you remain eligible for full deduction. |
## Action Steps You Can Take Now
1. **Review your pay stubs**: Ensure that overtime is coded properly and that the “half” portion over regular wages is clearly identified. If employer systems don’t support separate reporting, use other provided statements as evidence. Employers are getting a transition relief year for reporting but it’s beneficial for you to have evidence. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-provide-penalty-relief-for-tax-year-2025-for-information-reporting-on-tips-and-overtime-under-the-one-big-beautiful-bill?utm_source=openai))
2. **Vehicle purchase timing & eligibility**: If you’re in the market for a new auto, prioritize waiting until 2025/2026, ensuring vehicle is assembled in the United States and for personal use. New vs used status matters. Leases don’t qualify. |
3. **Monitor your MAGI**: Use tax planning software or work with a tax planner to estimate your income including all sources—investments, side gigs, tips. Rearrange income timing or deductions to stay under thresholds. |
4. **Save documentation**: Loan agreements, interest statements, purchase agreements, and overtime calculations are your supporting paperwork. Without them, deduction claims risk being rejected by IRS in audit. |
5. **Plan for phase-outs**: If you expect income crossing thresholds, project loss of deduction and weigh whether the cost of delaying income or accelerating expenses is worth the benefit. |
## Examples
- **Example 1**: Jane, single, MAGI ~$140,000, works overtime and earns extra. Under OBBB she can deduct overtime that’s above her regular rate—if that overtime pay is separated out in employer records. If she has $5,000 “extra overtime compensation”, that may reduce her taxable income immediately. |
- **Example 2**: A married couple earning $180,000 jointly buys a new U.S. assembled SUV in 2025, financed via a loan. They could deduct up to $10,000 in interest if usage is personal and criteria met. If their MAGI remains below $200,000, they get the full deduction. |
## Watch-Outs and Limitations
- The phaseouts are strict—once MAGI exceeds limit, deduction is reduced or eliminated. |
- Only new, U.S. assembled autos qualify. No leases. |
- Employers are getting transition relief for reporting duties in 2025, but that doesn’t change your responsibility to substantiate the deduction if claimed. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-provide-penalty-relief-for-tax-year-2025-for-information-reporting-on-tips-and-overtime-under-the-one-big-beautiful-bill?utm_source=openai))
- These deductions are available to both itemizing and non‐itemizing taxpayers. Good news if you usually take standard deduction. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions?utm_source=openai))
## Summary
The OBBB introduces important tax-breaking opportunities in the form of **overtime deductions** and **car loan interest deductions**, which, if properly leveraged, reduce taxable income meaningfully. The keys are documentation, understanding eligibility, keeping MAGI in check, and timing considerately. With incomes, purchases, and work schedules, there is leeway to maximize benefits for tax years 2025–2028—don’t miss your window.