Save on Car Loan Interest

New deduction

Effective for 2025 through 2028, individuals may deduct interest paid on a loan used to purchase a qualified vehicle, provided the vehicle is purchased for personal use and meets other eligibility criteria. (Lease payments do not qualify.)

  • Maximum annual deduction is $10,000.
  • Deduction phases out for taxpayers with modified adjusted gross income over $100,000 ($200,000 for joint filers).

Qualified interest

To qualify for the deduction, the interest must be paid on a loan that is:

  • originated after December 31, 2024,
  • used to purchase a vehicle, the original use of which starts with the taxpayer (used vehicles do not qualify),
  • for a personal use vehicle (not for business or commercial use) and
  • secured by a lien on the vehicle.
If a qualifying vehicle loan is later refinanced, interest paid on the refinanced amount is generally eligible for the deduction.

Qualified vehicle

A qualified vehicle is a car, minivan, van, SUV, pick-up truck or motorcycle, with a gross vehicle weight rating of less than 14,000 pounds, and that has undergone final assembly in the United States.

Final assembly in the United States

The location of final assembly will be listed on the vehicle information label attached to each vehicle on a dealer's premises. Alternatively, taxpayers may rely on the vehicle's plant of manufacture as reported in the vehicle identification number (VIN) to determine whether a vehicle has undergone final assembly in the United States.

  • The VIN Decoder website for the National Highway Traffic Safety Administration (NHTSA) provides plant of manufacture information.
Taxpayers can follow the instructions on that website to determine if the vehicle's plant of manufacture was located in the United States.

Taxpayer eligibility

Deduction is available for both itemizing and non-itemizing taxpayers.

  • The taxpayer must include the Vehicle Identification Number (VIN) of the qualified vehicle on the tax return for any year in which the deduction is claimed.

Reporting

Lenders or other recipients of qualified interest must file information returns with the IRS and furnish statements to taxpayers showing the total amount of interest received during the taxable year.

FAQs

- PROVIDES A TAX DEDUCTION FOR UP TO $10,000 IN ANNUAL INTEREST PAID ON LOANS TO ACQUIRE U.S. ASSEMBLED QUALIFYING VEHICLES FOR ELIGIBLE CONSUMERS

- APPLIES WHETHER AN INDIVIDUAL ITEMIZES DEDUCTIONS OR TAKES THE STANDARD DEDUCTION

- CONSULT YOUR TAX, LEGAL, OR ACCOUNTING PROFESSIONAL IF YOU HAVE QUESTIONS. THIS INFORMATION DOES NOT CONSTITUTE TAX, ACCOUNTING, OR LEGAL ADVICE.
INCOME LIMITS:  $100K SINGLE ($200K MARRIED FILING A JOINT RETURN) – PHASE OUT FOR NEXT $50K AND IS FULLY-PHASED OUT FOR TAXPAYERS WITH MODIFIED ADJUSTED GROSS INCOME IN EXCESS OF $150K ($250K MARRIED FILING A JOINT RETURN)
INDIVIDUALS FINANCING ONLY – NOT APPLICABLE TO COMMERCIAL/FLEET PURCHASES & NO LEASE BENEFIT
- ONLY APPLIES TO INTEREST PAID IN TAX YEARS 2025-2028

- MUST BE NEW DEBT CONTRACTED AFTER 12/31/2024, EXCLUDES REFINANCING OF DEBT INCURRED PRIOR TO 12/31/2024
- MUST BE ASSEMBLED IN THE U.S.

Guidance

The IRS will provide transition relief for tax year 2025 for interest recipients subject to the new reporting requirements.

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