New Auto Loan Interest Deduction: A Guide for 2025 and Beyond

Interest rates have been a headache for anyone in the market for a new vehicle lately. Fortunately, the IRS has released proposed regulations on a temporary tax relief measure that might soften the blow. Under the "One Big Beautiful Bill Act," you may be eligible to deduct interest paid on loans for specific new vehicles.

This provision kicks in for loans originated after December 31, 2024, and covers tax years 2025 through 2028. If you are planning a purchase, here is what you need to know to lock in these savings.

Who Qualifies for the Deduction?

This benefit is designed for individuals (and certain trusts) buying new, American-assembled passenger vehicles intended mostly for personal use. A major advantage here is that you do not need to itemize to claim it; it is available even if you take the standard deduction. The claim is treated as a reduction to taxable income on a new schedule filed with your Form 1040.

Cityscape background representing new vehicle infrastructure

However, there are specific financial guardrails to keep in mind:

  • Annual Cap: You can claim up to $10,000 per return. If you are married filing separately, you can each claim up to $10,000.
  • Income Phaseouts: The benefit starts to decrease once your modified AGI hits $150,000 (or $250,000 for joint filers).

Vehicle and Usage Requirements

Not every car on the lot qualifies. The vehicle must be a car, SUV, minivan, or pickup under 14,000 pounds, and crucially, final assembly must occur in the United States. You can verify a vehicle's origin using its VIN here: Welcome to VIN Decoding : provided by vPIC.

Virtual AI
If you’re ready to get a handle on your tax situation, reach out and we’ll guide you through each step.
Let’s Sort This Out

Additionally, you must anticipate using the vehicle for personal purposes more than 50% of the time at the time of purchase. Future adjustments aren't required if that percentage drops later, but the initial intent matters.

Notes for Business Owners

If you use your truck or car for both family runs and client visits, you have to do some math. You can still claim your business expense deduction for the business portion of the interest. The remaining personal portion can then be applied to this new deduction, subject to the cap. Just ensure you allocate proportionally.

Business team discussing mixed-use vehicle deductions

Allowable Expenses and Loans

You can deduct interest on the financed purchase price, as well as interest linked to sales tax and vehicle service plans. However, the loan must be secured by the vehicle and come from a formal lender (like a bank or credit union). A casual loan from a family member does not count, and neither does interest paid on a lease.

Lenders will eventually file the new Form 1098-VLI to report this activity. For 2025, however, you might just receive a standard statement showing the interest paid.

Navigating new regulations can be tricky, especially when income phaseouts and usage percentages come into play. If you want to make sure you are capturing every dollar of tax relief available to you, we can walk you through it step by step.

Virtual AI
If you’re ready to get a handle on your tax situation, reach out and we’ll guide you through each step.
Let’s Sort This Out
Share this article...

Want tax & accounting tips and insights?

Sign up for our newsletter.

I confirm this is a service inquiry and not an advertising message or solicitation. By clicking “Submit”, I acknowledge and agree to the creation of an account and to the and .