A major tax change is reshaping the financial landscape for new car buyers in the U.S. Beginning with the 2025 tax year, millions of taxpayers may qualify to deduct up to $10,000 per year in auto loan interest, even if they take the standard deduction. This new policy, enacted as part of the One Big Beautiful Bill Act (OBBBA), is designed to ease the financial burden on consumers in a time of historically high auto prices and interest rates.

Below is a comprehensive look at how this new deduction works, who qualifies, and what documentation you’ll need when filing.

What Exactly Is the New Auto Loan Interest Deduction?

Starting in tax year 2025, eligible taxpayers can deduct up to $10,000 annually in interest paid on qualifying new vehicle loans. This deduction runs through the 2028 tax year. Unlike most loan‑interest tax breaks (like mortgage interest), this one is available to both standard deduction and itemizing filers, making it significantly more accessible. Lawmakers introduced the deduction to address rising auto ownership costs, which have climbed due to high interest rates, supply chain issues, and inflation.

What Vehicles Qualify?

To receive the deduction, the vehicle must meet all of the following conditions:

Must Be Brand New / Used or leased vehicles are not eligible.

Must Be Assembled in the United States / Final assembly location must be in the U.S. You may confirm the assembly location via the NHTSA VIN Decoder.

Must Be for Personal Use / Business‑use vehicles are not eligible for this deduction.

Vehicle Type Restrictions Apply
Eligible vehicle classes include:

Cars
SUVs
Pickup Trucks
Vans / Minivans
Motorcycles

All must have a GVWR under 14,000 lbs.

Purchase Window: After December 31, 2024
Vehicles purchased January 1, 2025 – December 31, 2028 qualify.

What Loan Requirements Must Be Met?

Not only must the vehicle qualify,  the loan must also satisfy several IRS rules:
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Loan Must Originate After Dec 31, 2024
This ensures only new auto loans qualify.

Loan Must Be Secured by the Vehicle
This excludes personal loans or unsecured lenders.

Loan Must Be Used Solely to Purchase the New Vehicle
Refinancing older loans or purchasing used vehicles doesn't qualify.

Income Limits and Phaseouts

‍Income restrictions determine eligibility and deduction amount:

Full deduction available for taxpayers with MAGI below $100,000 (single) or $200,000 (joint).
The deduction phases out above these thresholds.

Required Documentation When Filing

When claiming the deduction, the IRS requires:
Vehicle Identification Number (VIN)
This must appear on your tax return.

Annual Lender Interest Statement
Lenders must issue reports showing total interest paid each year.

This reporting system ensures taxpayers can match interest deductions with verified lender documents.

Situations Where You Cannot Claim the Deduction

You cannot claim this tax benefit if:

The car was used or leased.
Final assembly took place outside the U.S.
The loan began before January 1, 2025.
The vehicle is used primarily for business.

These exclusions maintain the bill’s goal: promote new U.S.-assembled vehicle purchases.

Real‑World Example: How Much Could You Save?

Let’s say you purchase a U.S.-assembled SUV in March 2025:

Loan interest paid in 2025: $6,200
MAGI under $100,000
VIN reported
Lender statement received

You may deduct the full $6,200 from your taxable income — a meaningful reduction of your tax burden.
Even partial‑year interest counts if you buy later in the year.

Why This Deduction Matters

Vehicle ownership has become one of the biggest expenses for American households. Monthly car payments routinely exceed $700, and interest rates remain elevated by historical standards. This new deduction is aimed at:

Reducing the after‑tax cost of buying a new vehicle
Encouraging domestic manufacturing
Supporting lower‑ and middle‑income households
Helping offset rising auto prices and loan rates

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For consumers planning to buy a new car between 2025–2028, this tax break could save hundreds or even thousands of dollars each year.

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