New Car Loan Interest Deduction: What You Should Know
Tagged as: Everything Auto, Smart Spending
Tax year 2025 marks a big change for car buyers. Under the new One Big Beautiful Bill Act, many taxpayers may be able to deduct interest paid on a qualifying vehicle loan when filing their taxes from 2025 through 2028.
If you're planning to buy and finance a new car, here's what matters.
Key Facts:
- Effective tax years: 2025 through 2028
- Maximum deduction: Up to $10,000 per year in qualified auto loan interest
- Income limits:
- If you file single and earn $100,000 or less, you can claim the full deduction.
- If you're married filing jointly and earn $200,000 or less, you can claim the full deduction.
Note: If your income is above those amounts, the deduction gradually decreases and may phase out completely at higher income levels.
- Not eligible: Used vehicles, leases, business vehicles, fleet purchases, or loans from friends/family. Learn more about the IRS rules.
What Vehicles and Loans Qualify?
To claim this deduction, all of the following must apply:
- New loan originated after December 31, 2024
- Vehicle is new (not previously registered)
- Vehicle is for personal use (not business)
- Vehicle's final assemble occurred in the U.S.
- Loan is secured by the vehicle itself (lien)
How It Works on Your Tax Return
- Interest-only. You're only deducting the interest portion of your loan — not the car loan payments themselves.
- Standard or itemized. You can take this deduction whether you claim the standard deduction or itemize.
- Year-end tax statement. Your lender will provide a year-end statement showing how much interest you paid to help you calculate your claim.
- Claim on your tax return. You'll claim the deduction when you file your federal tax return. The interest amount is listed on an additional section of your Form 1040.
Why This Matters
If you're financing a qualifying new vehicle, this deduction could help lower your taxable income for up to four years — meaning potential savings at tax time.
Even a partial deduction can make a difference. Before you buy, it's worth understanding how this benefit fits into your overall financial plan. As always, we recommend speaking with a tax professional about your specific situation.
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New Car Loan Interest Deduction: What You Should Know
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