New Auto Loan Interest Deduction: What You Need to Know
November 12, 2025 Author: Compass Pointe CPAs
The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, introduced a new opportunity for taxpayers: a deduction of up to $10,000 for interest paid on qualified auto loans. This new deduction applies beginning in the 2025 tax year for vehicles purchased after December 31, 2024. It’s available whether you claim the standard deduction or itemize, and is currently scheduled to remain in effect through 2028 (unless Congress extends it).
Eligibility Requirements
To qualify, all of the following must apply:
- The vehicle is new (not used) and for personal use.
- Final assembly occurred in the United States (verified by the window sticker or VIN).
- You are the first owner or holder of the first lien (no lease financing).
- The vehicle has a gross weight under 14,000 pounds (includes cars, SUVs, trucks, vans, and motorcycles).
Income Limits
- Full deduction available for:
- All other individual filers with MAGI up to $100,000
- The deduction phases out by $200 for each $1,000 (or portion thereof) for every dollar above these thresholds.
- Fully phased out at $150,000 MAGI (single, MFS, HOH) and $250,000 MAGI (joint).
Key Rules
- Interest must be reported on Form 1098 from the lender.
- You must include the vehicle’s VIN on your tax return.
- Refinanced loans may qualify, but only up to the amount of the original debt.
- Leases and loans from related parties do not qualify.
Final Thoughts
While this new deduction offers meaningful savings for qualifying buyers, eligibility and benefit amounts vary depending on income and vehicle details. If you’re considering a new vehicle purchase in 2025 or later, keep these rules in mind — and check with your tax advisor to confirm how the deduction might apply to your situation.
