New Car Loan Interest Tax Deduction

Big Beautiful Bill Act: What You Need to Know About the New Car Loan Interest Deduction

Did you buy a new car recently? You might save money on your taxes. The “One Big Beautiful Bill Act” (OBBB) includes a new perk for car buyers. It is the car loan interest deduction.

This provision helps you save. You can deduct up to $10,000 in interest paid on qualifying auto loans. This applies to the 2025 tax year through 2028.

Best of all, this is an “above-the-line” deduction. You can claim it even if you take the standard deduction. It lowers your Adjusted Gross Income (AGI) directly.

Consult your tax advisor. Tax laws can be complex. We are here to help with your loan, but a tax professional should review your specific tax return.

Am I Eligible for the Auto Loan Tax Benefits?

Not every car loan qualifies. You must meet specific rules. The IRS has strict criteria for this deduction.

Here is what you need to qualify:

• New Vehicles Only: You must be the original owner. Used cars do not qualify. Leases do not qualify.
• Made in the USA: The vehicle must be assembled in the United States. You can check this via your VIN or the window sticker.
• Personal Use: You must use the car for personal reasons. Commercial vehicles do not count.
• Correct Vehicle Type: Cars, SUVs, vans, pickup trucks, and motorcycles qualify. The Gross Vehicle Weight Rating (GVWR) must be under 14,000 lbs.
• Loan Date: Your loan must have originated after December 31, 2024.
• Secured Loan: The interest must be paid on a standard, secured vehicle loan.

Income Limits and Phase-Outs

This benefit is designed for specific income levels. If you earn over a certain amount, the benefit decreases.

• Single Filers: The full deduction is available if your Modified Adjusted Gross Income (MAGI) is under $100,000. It phases out completely at $150,000.
• Married Filing Jointly: The full deduction is available if your MAGI is under $200,000. It phases out completely at $250,000.

The deduction drops by $200 for every $1,000 you earn over the limit.

How to Claim Your Car Loan Interest Deduction

Ready to file? Here is how you claim your savings.

1. Check Your Interest Total: You need to know how much interest you paid in 2025. Look at your December monthly statement. It shows your “Year-to-Date” (YTD) interest.
2. Get Your VIN: You must list the Vehicle Identification Number (VIN) on your tax return.
3. Use the Right Form: For the 2025 tax year, use Schedule 1-A. This is attached to Form 1040.

New Auto Loan Interest Deduction FAQs