One Big Beautiful Bill

The One Big Beautiful Bill introduces a new tax deduction for car loan interest, available from 2025 through 2028. For qualifying individual buyers, up to $10,000 in annual interest on new vehicle loans may be deductible—even without itemizing. However, the deduction excludes commercial vehicles, fleet sales, leases, and vehicles not assembled in the U.S. It also includes income-based phaseouts.

FAQ - Car Loan Interest Deduction 2025-2028

What is the deduction? You can deduct up to $10,000 per year in interest paid on loans for new, U.S.-assembled passenger vehicles & motorcycles, light trucks, vans, SUVs, RVs, ATVs, trailers weighing under 14,000 lbs—all financed 2025–2028
When does it apply? Loans taken out between January 1, 2025 and December 31, 2028, filed with your 2025–2028 tax returns
Which vehicles qualify?
  • Must be brand-new (no used cars)
  • Final assembly must occur in the U.S.
  • For personal use only (no fleet, rentals, commercial)
  • Weigh less than 14,000 lbs
Do I need to itemize deductions? No. This is an above-the-line deduction, meaning you can claim it even if you take the standard deduction.
Are there income limits?

Yes.

Single filers phase out starting at $100,000 MAGI, fully gone at $150,000.

Married filing jointly start phasing out at $200,000, fully gone at $250,000. Reduction is $200 for every $1,000 over the threshold
Can other vehicles like EVs or leases qualify?

EV tax credits are eliminated after Sept 30, 2025

Leased vehicles and used cars do not qualify
How much could I save?

Assuming a $44,000 loan at a 9.3% interest rate, you could save around $2,200 over four years
What documentation is required?

You'll need the VIN and a record showing the vehicle was assembled in the U.S. This is reported on your tax return
What documentation is required?

You'll need the VIN and a record showing the vehicle was assembled in the U.S. This is reported on your tax return
 
 

✅ Why It Matters for Consumers

  • Lowers monthly costs, especially in a high-rate environment.
  • Encourages financing over leasing or paying cash.
  • Boosts demand for U.S.-assembled vehicles, supporting domestic jobs—though it excludes many popular imports.
 

🗓️ Timing Overview

Tax Year Purchase Window Claimable on Tax Return
2025 2025 2026
2026 2026 2027
2027 2027 2028
2028 2028 2029

Note: If you purchase in 2025, you’ll claim it on your 2026 return. Source: Center for Agricultural Law and Taxation.

 

💡 Tips for Consumers

  • Confirm where the vehicle was assembled (domestic vs. foreign).
  • Track your adjusted gross income (MAGI) to know your phase-out status.
  • Keep your loan interest statements and VIN documentation.
  • For EV buyers: EV credits end Sept. 30, 2025, but the loan interest deduction continues through 2028—which may change the cost equation between models.