Here’s another helpful update under the One Big Beautiful Bill Act (OBBBA), and this one may benefit anyone planning to purchase a new personal vehicle in the next few years. For tax years 2025 through 2028, you may be able to deduct the interest paid on a qualifying car loan — something that previously wasn’t allowed for personal-use vehicles.
What’s New?
You can now deduct up to $10,000 per year in interest paid on a loan used to buy a new personal vehicle.
This is an above-the-line deduction, which means:
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It reduces your taxable income directly.
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You can claim it even if you take the standard deduction.
When It Applies
This deduction applies only to:
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Tax years 2025–2028
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Car loans taken out after December 31, 2024
Eligibility Requirements
To claim the deduction, all of the following must be true:
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The vehicle must be new. You must be the first owner/user.
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The loan must be secured with a first lien on the vehicle.
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Vehicle type: Car, minivan, van, SUV, pickup truck, or motorcycle.
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Weight limit: GVWR must be under 14,000 lbs (no heavy commercial vehicles).
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Made in the U.S.: The vehicle’s final assembly must occur in the United States — a key requirement.
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VIN reporting: You must report the Vehicle Identification Number (VIN) on your tax return.
Income Phase-Out (Reduction)
The deduction decreases once your income passes certain levels:
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Single filers: Phase-out begins at $100,000 MAGI
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Married filing jointly: Phase-out begins at $200,000 MAGI
Your deduction is reduced proportionally as your income rises above these thresholds.
Additional Note
Lenders are now required to report the interest they receive to the IRS. This will help the IRS verify that the deduction is claimed correctly.
If you’re considering buying a new vehicle soon, or you’d like to understand how this deduction might benefit you, feel free to reach out. We are happy to help you plan ahead and take advantage of these new opportunities.