The New Car Loan Interest Deduction: Who Qualifies
Part of our 2025 Tax Law Changes guide — the complete breakdown of the One Big Beautiful Bill Act.
For the first time in decades, personal car-loan interest is deductible for some taxpayers. The 2025 One Big Beautiful Bill Act created a temporary, above-the-line deduction for interest paid on a loan used to buy a qualifying personal-use vehicle.
The rules in brief
- Deduction of up to roughly $10,000 per year of qualified car-loan interest.
- The vehicle generally must be new and assembled in the United States, purchased for personal use.
- Income phase-outs apply (beginning around $100,000 single / $200,000 joint MAGI).
- Above-the-line — available even to taxpayers who take the standard deduction.
- Temporary — currently for tax years 2025 through 2028.
What to tell clients
Buyers should keep the loan documents and confirm the vehicle’s final-assembly location before assuming the interest qualifies. Leases and used vehicles generally do not count, and business-use vehicle interest follows separate (often more favorable) rules. Confirm the current caps and phase-out thresholds before advising.
Educational and current as of publication. Tax figures, thresholds, and effective dates change and many provisions are temporary — confirm the current statute and IRS guidance before relying on any point here. Not legal or tax advice.
