Interested in the New Car Loan Interest Deduction?

This past summer on our way home from attending the IRS Forum in Orlando, we found ourselves eating lunch at a restaurant beside the Daytona International Speedway.  While there wasn’t a race that day, it was fun to see the facility and imagine the cars zooming around the track.  Later, we had dinner in St. Augustine (we never claimed to be efficient navigators) at a Ford-themed restaurant, complete with vintage automobiles that completed the 1920s garage motif.  It’s amazing to think about the changes in the design and function of personal vehicles since Henry Ford’s time, and to wonder what he’d think if he could see a race at Daytona today.

It’s equally amazing that Ford’s early Model T’s, once he’d implemented his revolutionary assembly-line efficiencies, sold for about $250 – a little less than $5000 in today’s dollars! Obviously, there are no new cars for sale at anywhere near that price today, which is what makes a new tax break attractive for some motorists.

Starting with 2025 tax returns and extending through 2028, taxpayers who purchase a qualifying vehicle may deduct up to $10,000 of auto loan interest.  “Vehicle” includes cars, minivans, vans, SUVs, pickup trucks, and motorcycles if the gross vehicle weight is less than 14,000 pounds.  However, as with all tax deductions, there are specific rules that apply.

To be a qualifying vehicle, it must have been purchased after January 1, 2025, and it must be financed with a loan secured by a lien on the car.  Furthermore, it must have been purchased with the intent to be a personal-use (not business) auto, and the taxpayer claiming the deduction must be the original owner; used cars do not qualify.

Finally, the vehicle must have had its final assembly in the United States.  The easiest way to determine this is to check the National Highway Transportation Safety Administration’s VIN decoder tool found here.  It's important to verify this step, because the VIN must be reported on the tax return to claim the deduction.

This new tax break is in addition to the standard deduction (or the Schedule A total, if the taxpayer chooses to itemize), but it starts to phase out for a single taxpayer when their Adjusted Gross Income exceeds $100,000 and is totally gone when AGI reaches $150,000 (married couples filing jointly phase out between $200.000 and $250.000).  Also note that the $10,000 cap on this deduction is per return, not per taxpayer.

In 2026, auto finance companies will be required to issue a Form 1098 reporting the interest paid during the year.  However, since the OBBBA passed so late in the year, there is no such requirement for 2025.  Taxpayers wanting to take this deduction will need to use monthly statements or other information from their finance company to determine the amount of interest they paid in 2025.

While the impact of this new deduction won’t be huge, it is a nice benefit for the taxpayers who qualify to take it.  If you bought a new vehicle in 2025, make sure to tell us … and please make sure you don’t drive down Greenville Boulevard like you’re on the Daytona Speedway!