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New Car Loan Interest Deduction: What You Should Know

Starting in tax year 2025, car buyers may be eligible for a new tax benefit. Under the One Big Beautiful Bill Act, qualifying taxpayers may be able to deduct interest paid on a qualifying vehicle loan when filing their federal taxes.
 

This deduction is available for tax years 2025 through 2028, potentially lowering your taxable income if you finance a qualifying new vehicle.



Quick Summary

Here is a quick overview of the new auto loan interest tax deduction:
  • New tax benefit: Some taxpayers may be able to deduct interest paid on a qualifying new car loan.
  • Available years: Applies to tax years 2025 through 2028.
  • Maximum deduction: Up to $10,000 per year in auto loan interest.
  • Income limits: Full deductions available for individuals earning $100,000 or less or $200,000 or less for married couples filing jointly (phases out above those levels).
  • Vehicle requirements: The vehicle must be new, for personal use, assembled in the U.S., and financed with a secured auto loan.  Learn more about the IRS rules.

Understanding the Car Loan Interest Deduction 

Beginning in 2025, eligible taxpayers may be able to deduct up to $10,000 per year in qualified auto loan interest deduction from 2025 through 2028.
 
It's important to note that the deduction applies only to the interest portion of the loan, not the full loan payment.
 
Depending on your income and loan details, this deduction could reduce your taxable income for up to four tax years.
 

I received a year-end tax statement from my lender, does that mean I qualify?

Not necessarily. A tax statement simply shows the amount of interest you paid on your auto loan during the year. 
  • Your lender does not know if you meet the criteria for the deduction.
  • Your lender may provide tax information for all auto loans financed or list it per loan like we do at 1st United.
  • Consult the IRS or your tax advisor for more details.

Income Limits for the Full Deduction

Your income determines whether you qualify for the full deduction.
 
  • Single filers: Up to $100,000 or less in annual income
  • Married filing jointly: Up to $200,000 or less in combined income
If your income exceeds these amounts, the deduction gradually decreases. It will completely phase out at higher income levels.

What Vehicles and Loans Qualify

To claim this deduction, all of following must apply:
  • The loan originated after December 31, 2024
  • The vehicle is new (not previously registered)
  • The vehicle is for personal use (not business)
  • The vehicle's final assembly occurred in the U.S. 
    • Find out if your vehicle's final assembly occurred in the U.S. by simply entering your VIN number in the VIN Decoder website
  • The loan is secured by the vehicle itself (lien)

I have a used vehicle, can I still qualify?

No. The deductions applies only to new vehicles.
 
The following are also not eligible:
  • Used vehicles
  • Leased vehicles
  • Business vehicles
  • Fleet purchases
  • Loans from friends or family

Claiming the Deduction on Your Tax Return

If your loan qualifies, the deduction is claimed when filing your federal tax return.
 
A few important points to remember:
  • Only the interest portion of the loan may be deductible.
  • Your lender will provide documentation showing the interest paid during the year. 
  • The deduction can be claimed whether you take a standard deduction or if you itemize.

Why This Tax Deduction Matters

With vehicle prices and interest rates still high, this deduction can help lower your taxable income for up to four years when you finance a qualifying new vehicle.

Even a partial deduction may translate into meaningful savings at tax time.

If you're planning to finance a new car, understanding this tax benefit may help you make a more informed financial decision. As always, we recommend speaking with a tax professional to see how this may apply to your situation.















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