The One Big Beautiful Bill Act, created a new income tax deduction for individuals that pay automobile loan interest. The deduction can be up to $10,000 annually for those who qualify. This deduction is an above-the-line deduction, meaning that qualifying taxpayers can claim the deduction even if they do not claim itemized deductions (typically mortgage interest, state taxes and charitable contributions).
To qualify the interest must be a loan to acquire a vehicle that is new, acquired in 2025 or later, assembled in the United States, weighs less than 14,000 pounds, and used for personal, not business, purposes. The deduction applies only to interest paid on loans, (leases do not qualify). Eligibility for the deduction is phased out as income exceeds certain levels. Single filers earning up to $100,000 and joint filers up to $200,000 can claim the full deduction. Once those thresholds are exceeded, the benefit phases out, with the deduction eliminated at $150,000 of income for single filers and $250,000 for joint filers.
The law specifically identifies cars, minivans, vans, sports utility vehicles, pickup trucks and motorcycles as being vehicles eligible for the deduction. Note other vehicles not designed to be primarily used on public streets are specifically excluded from eligibility.
We expect the IRS to publish a list of cars that qualify, but that is not currently available. Until them, you may be able to determine if a car qualifies, you can check the VIN (US-assembled vehicles often have VINs starting with 1, 4, or 5), look at the Moroney Sticker on the window, ask the dealer, or use the VIN lookup tool on the NHTSA website. Several vehicles are potentially eligible based on U.S. “final assembly” locations, including certain models from Acura, Cadillac, Ford, GMC, Chevrolet, Buick, Honda, Jeep, Lexus, Tesla, Toyota, and Volkswagen. However, final assembly locations can vary by specific model and year, so it’s essential to confirm this information before purchasing to ensure eligibility.
This deduction is temporary only available for tax year 2025 through 2028 tax years.
As an example, a $30,000 new car loan at 6%, starting 08/01/25 would have about $4,267 of interest paid by 12/31/28. At a 24% tax rate, the new deduction would save you about $1,025 over the 3 and half year period.