Tax Planning
Maximizing Deductions Under the ‘One, Big, Beautiful Bill’: Overtime & Vehicle Interest Explained
New deductions under the One, Big, Beautiful Bill (OBBBA) allow taxpayers to deduct qualified overtime and car loan interest—here’s how to make use of both without triggering phase-outs.
By NomadicTax Research Team • 5-8 min read • February 19, 2026
## What’s Changed
The One, Big, Beautiful Bill (OBBBA), enacted in July 2025, introduces two **new deductions** for individual taxpayers: **qualified overtime pay** and **personal car loan interest**. These become effective in tax year 2025 and continue through 2028.([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-act-of-2025-provisions?utm_source=openai))
### Qualified Overtime Pay
- **What qualifies:** For 2025–2028, individuals may deduct the *portion of overtime pay exceeding their regular rate* (e.g., the "half" portion of time-and-a-half).([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-act-of-2025-provisions?utm_source=openai))
- **Amount limits:** Up to **$12,500** per year (or $25,000 if filing jointly). There’s a phase-out for modified adjusted gross income (MAGI) above **$150,000** (single) or **$300,000** (married filing jointly).([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-act-of-2025-provisions?utm_source=openai))
### Car Loan Interest Deduction
- **What qualifies:** Interest on a loan for a **qualified personal-use vehicle**, purchased after **December 31, 2024**, secured by a lien, excluding leases. Vehicle must have been assembled in the U.S., be under 14,000 pounds.([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-act-of-2025-provisions?utm_source=openai))
- **Limit & phase-out:** Up to **$10,000** per year. Phased out for taxpayers with MAGI over **$100,000** (single) or **$200,000** (married filing jointly).([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-act-of-2025-provisions?utm_source=openai))
## Practical Steps for Claiming These Deductions
1. **Determine eligibility**: Check your MAGI to ensure you’re below the phase-out thresholds.
2. **Collect documentation**:
- For overtime: pay records showing regular vs. overtime hours and rate.
- For car loan interest: loan documentation, vehicle VIN and assembly info.
3. **Reporting**:
- Overtime must be reported on Forms W-2, 1099, or similar.([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-act-of-2025-provisions?utm_source=openai))
- Use the appropriate deduction lines on Schedule 1 of Form 1040 for 2025.
4. **Consider planning**: If you anticipate income rises, explore timing deductions or splitting income across years to stay under thresholds.
## Examples
| Filing Status | Scenario | Deduction Claimed |
|---------------|----------|--------------------|
| Single, MAGI $140,000 | Paid $5,000 of qualified overtime | Full $5,000 deductible |
| Married filing jointly, MAGI $180,000 | Car loan interest $9,000 | Full $9,000 deductible |
| Single, MAGI $160,000 | Overtime $12,500, interest $10,000 | Partial deduction likely (phase-out) |
## Caveats & Common Mistakes
- Overtime portion must be clearly separated from regular pay; inaccurate reporting can cause audits.
- Veterans or self-employed individuals need to check if their overtime is eligible.
- “Qualified vehicle” requirements are strict: weight, assembly, lien status matter.
## Bottom Line
If you're an employee or someone who takes out personal vehicle loans, these new deductions under OBBBA can deliver **significant tax savings**, especially for those who normally itemize or have higher qualifying expenses. Track your income closely in 2025–2026 to optimize phase-outs, and always gather reliable documentation. It’s not just about knowing *what’s new*—it's about integrating these into your planning well in advance.