Beginning with the 2025 tax year and extending through 2028, eligible buyers can deduct up to $10,000 per year in auto loan interest paid on new, personal-use vehicles assembled in the U.S. This is an above-the-line deduction, meaning it can reduce your adjusted gross income (AGI) whether you itemize or take the standard deduction.
Vehicle & Loan Eligibility Rules
To qualify, vehicles and loans must meet all these criteria:
- New vehicle, purchased on or after January 1, 2025 (first tax‐year use). Neither used nor leased vehicles qualify.
- Must be assembled in the U.S., confirmed via window sticker or VIN-based manufacturing plant lookup. The car’s vehicle identification number (VIN) must also be reported on the tax return to qualify.
- Must be used for personal—not commercial—purposes (excluding fleet or business use). From what I have read, partial business use (such as a self-employed consultant using a vehicle for seeing clients) would not disqualify the deduction; however, interest expense would have to be apportioned between business and personal usage. The business percentage of the interest paid would be deducted on Schedule C.
- Vehicle types: cars, SUVs, pickup trucks, vans, and motorcycles under 14,000 lbs GVWR. The vehicle must be certified for highway use (that eliminates off-road vehicles such as ATVs and golf carts).
- Loans on electric vehicles appear to qualify (even though the current $7,500 federal EV credit expires on September 30, 2025). I have read nothing that would require the vehicle to be gas-powered.
- The loan must be secured by the vehicle at the time of purchase. This eliminates using a home equity or some other loan that is not secured by the vehicle. If a qualifying loan is later refinanced (e.g., to lower the interest rate), the new loan would qualify, but only the interest on the refinanced balance of the original loan would be deductible.
Who Can Claim It?
Income Limits:
- Single filers: full deduction if MAGI (modified adjusted gross income) is $100,000 or less
- Married filing jointly: full deduction if MAGI is $200,000 or less
- Above those limits, the deduction phases out by $200 per $1,000 of MAGI, and disappears entirely at higher thresholds (some sources report $150k/250k)
Deduction Mechanics:
- Maximum deduction is $10,000/year, but most consumers won’t pay that much interest—so actual savings often range around $400–$500/year for typical loans based on the average vehicle price and interest rates.
IRS Guidance & Reporting
In late July 2025, the IRS issued FAQ FS-2025-03, clarifying that:
- Vehicle assembly can be verified by the window sticker or VIN lookup (via NHTSA’s site);
- A new information reporting requirement (IRC §6050AA) obligates finance providers to issue a Form 1098‐style statement for any borrower who pays $600 or more interest/year;
- These forms must be furnished to taxpayers by January 31 following the tax year, with filing to the IRS anticipated by widely established deadlines (likely March 31 for e‑filers)
Example: What You Might Save
Suppose you take a new $44,000 loan at roughly 9% interest—total interest over the year might be about $3,000. If you’re in the 12% marginal tax bracket, you’d reduce your AGI and taxable income by $3,000 and save roughly $360 in federal tax. Larger loans (e.g., $110,000+) may allow deduction up to the full $10,000 cap.
Consider the Context
- Tax savings are modest. Analysts noted the deduction may offer only about $20/month relief, while tariffs on exports have pushed vehicle prices higher, potentially outweighing any benefit;
- Critics question whether it will significantly boost sales or help lower-income buyers, who often buy used or imported models (which don’t qualify);
- The deduction ends after tax year 2028, unless Congress acts to extend it.
Quick Checklist
| Item | Notes |
| Purchase Date | On or after Jan 1, 2025 |
| Vehicle Type | New, personal-use car/SUV/truck under 14,000 lbs |
| Assembly Location | U.S.-assembled—verify via sticker or VIN |
| Loan Interest | Only the interest portion is eligible; cap is $10,000/year |
| Income Limits | Full deduction up to $100k (single) or $200k (joint); phases out beyond that |
| Filing Method | Above-the-line deduction: standard or itemized is fine |
| Documentation | Retain 1098-like lender statement, purchase docs, and VIN verification. |
| Deadline | Applies to tax years 2025–2028 only |
California Conformity OBBBA Provisions
Senate Bill 711 (SB 711) proposes updating California’s IRC conformity date to January 1, 2025, effective for taxable years starting 2025. If passed, CA would automatically adopt OBBBA provisions, including the auto-loan interest deduction, as part of California’s tax code framework. Stay tuned.
Final Thoughts
This auto loan interest deduction represents a rare opportunity: a bipartisan‐style benefit available to both itemizers and non‐itemizers. But its real-world impact will likely be modest, limited mainly by who qualifies, vehicle pricing dynamics, and the rising cost of auto loans amid tariffs. Still, if you finance a qualifying U.S.-assembled new vehicle and fall within the income thresholds, you should expect some federal tax relief. Consult with your tax advisor regarding your situation.