No Tax on Car Loan Interest: What You Need to Know

Starting in 2025, a new temporary tax break makes it easier for individuals to afford a new car, truck, or motorcycle. Thanks to the One Big Beautiful Bill Act, you can now deduct up to $10,000 per year in interest paid on a car loan for a qualified vehicle purchased for personal use. This deduction is available for tax years 2025 through 2028.

 

Who Qualifies? To claim this deduction, your car loan must meet these requirements:

• The loan must be originated after December 31, 2024.
• The loan must be used to buy a new vehicle (used vehicles do not qualify).
• The vehicle must be for personal use (not business or commercial).
• The loan must be secured by a first lien on the vehicle.

If you refinance a qualifying loan, the interest on the refinanced amount is generally still eligible.

 

What Vehicles Qualify? Eligible vehicles include cars, minivans, vans, SUVs, pickup trucks, and motorcycles with a gross vehicle weight under 14,000 pounds. Importantly, the vehicle must have its final assembly in the United States. You can check the vehicle’s information label at the dealership or use the VIN (vehicle identification number) and the NHTSA’s VIN Decoder website https://www.nhtsa.gov/vin-decoder to confirm the assembly location.

 

Income Limits and How to Claim The deduction begins to phase out if your modified adjusted gross income is over $100,000 ($200,000 for joint filers). Both itemizers and non-itemizers can claim this deduction, but you must include the vehicle’s VIN on your tax return.

 

Lenders will provide you with a statement showing the total interest paid, and the IRS will offer transition relief for 2025 as everyone adjusts to the new rules.

 

This new deduction can make buying a new, U.S.-assembled vehicle more affordable—so let us know if you’ve made a purchase!