You may qualify for a brand-new federal tax deduction that allows you to deduct interest paid on your auto loan.
This deduction was included in the Working Families Tax Cuts Act (also referred to as the “One Big Beautiful Bill”) and is designed to make car ownership more affordable while supporting domestic vehicle production.
Here’s how it works, who qualifies, and what to watch for.
What Is the Car Loan Interest Deduction?
Beginning in tax year 2025, eligible taxpayers can deduct up to $10,000 per year in interest paid on a qualifying new vehicle loan.
Important details:
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The deduction applies to interest only, not the loan principal.
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It is a below-the-line deduction, meaning it reduces taxable income.
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You do not have to itemize to claim it — it is available even if you take the standard deduction.
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It is temporary and currently applies to vehicles purchased January 1, 2025 through December 31, 2028.
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The deduction is scheduled to expire after 2028 unless extended.
How Much Could This Save You?
The actual tax savings depend on:
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Your income level
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The interest rate on your loan
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The size of your loan
Experts estimate that:
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Many eligible taxpayers could deduct $3,000–$4,000 in interest in the first year.
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Total tax savings could amount to hundreds or even thousands of dollars, depending on your tax bracket.
Because deductions reduce taxable income (not your tax bill dollar-for-dollar), the higher your tax bracket, the greater the potential savings.
Income Limits for the Deduction
The deduction begins phasing out once your Modified Adjusted Gross Income (MAGI) exceeds:
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$100,000 for single filers
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$200,000 for married filing jointly
If your income exceeds these amounts, your deduction is reduced by $200 for every $1,000 above the threshold.
Example:
If you are single and earn $105,000, your maximum deduction is reduced by $1,000 (5 x $200), meaning your maximum allowable deduction would be $9,000 instead of $10,000.
Loan Requirements
To qualify, your auto loan must:
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Be taken out after December 31, 2024
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Be secured by a lien on the vehicle
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Be used specifically to purchase a qualifying new vehicle
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Not be a refinance of an existing auto loan
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Include a valid VIN
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Be issued by a legitimate lender or dealership
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Include interest payments made during the tax year
Vehicle Requirements
Your vehicle must:
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Be brand new (used vehicles do NOT qualify)
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Be assembled in the United States (final assembly requirement)
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Be designed for public road use
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Have at least two wheels
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Have a gross vehicle weight rating under 14,000 pounds
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Be primarily for personal use (not business use)
Eligible vehicles typically include:
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Cars and sedans
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SUVs and minivans
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Pickup trucks and vans
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Motorcycles and ATVs
Vehicles that do not qualify:
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Used vehicles
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RVs and campers
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Vehicles assembled outside the U.S.
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Commercial-use vehicles
Click here to see a list of vehicles assembled in the US. Or you can verify your vehicle’s assembly location using your VIN on the National Highway Traffic Safety Administration website.
How to Claim the Deduction
When filing your 2025 return:
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Gather your auto loan statements showing total interest paid.
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Report the interest amount and VIN on your tax return.
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Complete the required Schedule form when filing. Morris and Associates can help you complete this form.
Because this deduction is new, 2025 is considered a transition year. Lenders may report interest payments through:
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Annual statements
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Monthly statements
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Online portals
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Other official lender communications
Be sure to save any documentation your lender provides.
How Long Is This Available?
The deduction applies to new vehicles purchased between:
January 1, 2025 – December 31, 2028
Unless Congress extends it, the deduction will expire after 2028.
Important Planning Considerations
While this deduction can provide real savings, there are restrictions and technical requirements. It’s important to confirm:
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Your vehicle qualifies
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Your income falls within limits
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Your loan structure meets IRS requirements
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The interest amount is properly documented
Because this deduction interacts with income thresholds and other tax credits, professional review is recommended before claiming it.
How Morris and Associates Can Help
At Morris and Associates, we help clients determine:
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Whether their vehicle and loan qualify
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How much interest can be deducted
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How this deduction impacts overall tax strategy
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Whether income planning could preserve eligibility
If you purchased a new vehicle in 2025, this deduction could meaningfully reduce your taxable income — but only if applied correctly.
📍 Serving Gwinnett County and the Greater Atlanta area, we’re here to help you navigate new tax law changes with clarity and confidence. Schedule a consultation today
