Car Loan Interest Deduction

The One Big Beautiful Bill Act makes it so that you can deduct up to $10,000 of qualified car loan interest per year!

The Car Loan Interest Deduction only applies to qualified indebtedness incurred after Dec 31, 2024 to purchase a new vehicle for personal use and secured by a first lien on that vehicle.

To qualify for the deduction, the vehicle must meet ALL of the following:

• Original use commences with the taxpayer;

• Primarily manufactured for use on public streets, roads, and highways;

• Must have at least two wheels;

• Vehicle types include: cars, minivans, vans, SUVs, pickup trucks, and motorcycles;

• Has a gross vehicle weight rating (GVWR) under 14,000 pounds;

• Must be a “motor vehicle” under Title II of the Clean Air Act; and

• Has final assembly that occurs in the United States

  • VIN and assembly information can be confirmed via dealer sticker labels, or the National Highway Traffic Safety Administration (NHTSA) VIN Decoder.

    
    

The Car Loan Interest Deduction phases out when a single filer reaches $100,000 of Adjusted Gross Income (AGI), or $200,000 for joint filers. For every $1,000 of AGI above thresholds, the deduction is reduced by $200 until fully phased out

You must include the VIN on your tax return.

Lenders must file an information return with the IRS and provide a statement to the borrower reporting the amount of interest paid.

The Car Loan Interest Deduction is effective for tax years 2025 through 2028