Key Takeaways
- You can deduct up to $10,000 per year in interest paid on a loan for a qualifying new vehicle purchased January 1, 2025 or later - through 2028.
- The vehicle must be new (you are the first owner), assembled in the United States (confirmed by VIN), and used for personal use only.
- Business-use vehicles do not qualify for this individual deduction (business owners have separate depreciation options).
- Income limits: phase-out begins at $100,000 MAGI (single) / $200,000 (joint); fully phases out at $150,000 (single) / $250,000 (joint).
- This is an above-the-line deduction - claimable whether you itemize or take the standard deduction.
- The deduction is temporary: 2025 through 2028 tax years only.
- You need your Vehicle Identification Number (VIN) and an annual interest statement from your lender to claim this.
When you’re staring at a new car loan at 6–8% interest, the monthly payment can sting. The One Big Beautiful Bill Act (OBBBA) gives you a way to take some of that sting back: a federal income tax deduction on the interest you pay, up to $10,000 per year, for new American-made vehicles financed on or after January 1, 2025.
Over four years (2025–2028), that’s up to $40,000 in potential deductions — enough to meaningfully reduce the true cost of a qualifying car purchase for millions of Americans. Here’s exactly how it works.
Part of our OBBBA Tax Guide series — see all OBBBA deductions in one place.
The Key Requirements
There are four things your vehicle purchase needs to satisfy:
1. New vehicle — you are the first owner. Used cars, certified pre-owned, and fleet vehicles don’t qualify. This means no private party purchases of “new” stock either — you need to be the original owner.
2. Final assembly in the United States. The car’s VIN must verify U.S. final assembly. You don’t have to figure this out manually — your lender is required to report VIN information to the IRS. Eligible brands include many Ford, Chevy, GMC, Ram, Chrysler, Jeep, Toyota (US-assembled), Honda (US-assembled), and Tesla models among others. German and Korean imports assembled abroad generally don’t qualify even if the brand is familiar.
3. Personal use only. If you use the vehicle for business, that portion is excluded. A car used 80% for personal travel and 20% for business can only apply 80% of the interest toward this deduction.
4. Loan originated on or after January 1, 2025. Cars purchased before that date don’t qualify, even if you still have the loan.
Income Limits
| MAGI | Single Filer | Married Filing Jointly |
|---|---|---|
| Under $100,000 | Full deduction (up to $10,000) | Full deduction |
| $100,000–$150,000 | Phases out | N/A |
| $100,000–$200,000 (joint) | N/A | Phases out |
| Above $150,000 | $0 | N/A |
| Above $250,000 | N/A | $0 |
The phase-out is proportional. At $125,000 (single), you’ve used 50% of the phase-out range ($25,000 of $50,000 range), so your deduction caps at $5,000. At exactly $150,000, the deduction is $0.
Real Examples
Example 1 — Kevin, First-Time New Car Buyer
Kevin buys a new Ford F-150 assembled in Kentucky for $45,000. He finances $38,000 at 7.5% APR over 60 months.
- Year 1 interest paid: approximately $2,740
- Kevin’s MAGI: $72,000 (under $100,000 threshold)
- Full $2,740 deductible
- At 22% bracket: $603 in tax savings
Kevin does this for 4 years. By 2028, he’s deducted roughly $9,100 in total interest (interest decreases as the loan amortizes). Total savings over the deduction period: about $2,000 in federal income tax.
Example 2 — Sandra, Larger Loan (High Interest Environment)
Sandra finances a new Chevy Suburban at $58,000 at 8.0% APR over 72 months.
- Year 1 interest: approximately $4,500
- Year 2 interest: approximately $4,200
- MAGI: $95,000
- Both years: full deduction available
- Combined two-year savings at 22%: approximately $1,914
Example 3 — Tom and Linda, Joint Filers (Mid-Range Income)
Tom and Linda buy a new Toyota Camry assembled in Kentucky, financing $30,000 at 6.5%.
- Year 1 interest: approximately $1,880
- MAGI: $175,000 (within the $200,000 joint phase-out range)
- Phase-out: $175,000 − $200,000 threshold… wait, they’re under $200,000 — full deduction.
- $1,880 deductible
- At 22% bracket: $414 in savings
Example 4 — High-Income Buyer Partially Phased Out
Single filer, MAGI $130,000, buys new American-made SUV. Interest in year 1: $3,200.
Phase-out: $130,000 − $100,000 = $30,000 over threshold. Phase-out range is $50,000. Fraction phased out: 30/50 = 60%. Available deduction: 40% of $3,200 = $1,280.
At 24% bracket: $307 in savings. Less than the full case, but still real money.
What About Refinancing?
If you refinance your qualifying new car, the interest on the refinanced amount generally remains eligible. The key is that the vehicle itself still qualifies — it’s still new, still American-assembled, still used personally. The refinance doesn’t reset the clock or create new disqualification.
Your new lender takes over the reporting obligation and will provide an updated interest statement for tax purposes.
The VIN and Documentation
You’ll need two things to claim this on Schedule 1-A:
- Your Vehicle Identification Number (VIN) — on your registration, loan documents, and the door jamb of your vehicle
- Annual interest statement from your lender — lenders are required to send this by January 31 each year (similar to a 1098 for mortgage interest)
The IRS uses the VIN to verify U.S. final assembly. If your VIN doesn’t confirm U.S. assembly, your deduction will be disallowed. Check before you buy — the National Highway Traffic Safety Administration (NHTSA) VIN decoder at NHTSA.gov shows assembly location.
Stacking With Other Incentives
The OBBBA eliminated the federal EV tax credit after September 30, 2025. If you bought a qualifying EV before that date, you could have stacked the EV credit with this auto loan interest deduction. That window is now closed.
Going forward, the auto loan interest deduction stands alone. It applies equally to gasoline, hybrid, and any EV model that meets the U.S.-assembly requirement — the OBBBA doesn’t exclude EVs from the interest deduction, it just ended the separate EV purchase credit.
I’ll update this page if Congress modifies the rules — subscribe here to stay current.
Common Issues to Watch Out For
The most common mistake: assuming any car loan qualifies. The “Made in America” requirement catches people off guard. Several popular foreign brands have U.S. assembly plants — check the VIN before assuming you’re in or out.
Second: deducting interest on a used vehicle. The law is explicit — first owner, new vehicle only. There’s no workaround here.
Third: deducting business-use interest. If you use your car for both personal and business, you need to prorate. Business vehicle interest goes through different rules (depreciation, Section 179) and not through Schedule 1-A.
Looking Ahead: 2027 and 2028
The deduction runs through 2028. If you’re considering a new car purchase in 2026 or 2027, the deduction is still available — and auto loan interest rates have been running high, making the deduction more valuable.
By 2028, you’ll have claimed several years of interest deductions. If you took a 5-year loan in 2025, your 2028 deduction will be smaller (later-year payments are more principal than interest), but it still counts.
One thing worth watching: whether Congress extends this beyond 2028 as part of any future tax package. The “Made in America” angle makes it politically attractive regardless of which party controls Congress.
Also see: 2026–2027 IRS Tax Brackets — calculate exactly how much this deduction saves you at your rate.
