US Trends

car loan interest deduction

Car loan interest can now be tax‑deductible in limited cases in the U.S. for 2025–2028, thanks to a new provision in the One Big Beautiful Bill Act, but there are strict rules on who qualifies and how much you can deduct. It’s an “above‑the‑line” deduction (you can take it even if you use the standard deduction), capped at $10,000 of interest per year, and subject to income and vehicle requirements.

Quick Scoop

  • New deduction window (2025–2028) : Interest on qualifying new car loans taken out after December 31, 2024 can be deducted on your federal return for tax years 2025–2028.
  • Annual cap : You can deduct up to $10,000 of qualified car loan interest per year, no matter whether you itemize or take the standard deduction.
  • Above‑the‑line benefit : This shows up as an adjustment to income (on a new schedule) rather than an itemized deduction, which can help lower taxable income directly.

Who can claim it?

To qualify, you generally need all of the following:

  • The car is new , purchased after 12/31/2024.
  • The vehicle is a passenger vehicle for personal use , not a lease, and the loan is secured by a first lien on that vehicle.
  • The car must meet “qualified vehicle” rules , including final assembly in the U.S. and other specs set under the Act.
  • Your modified AGI (MAGI) is not too high:
    • Phase‑out starts at about $100,000 MAGI for single filers and $200,000 for married filing jointly.
* The deduction is reduced by about **$200 for each $1,000** of income above the threshold until it phases out completely.

What doesn’t qualify?

Some common situations don’t get the new break:

  • Leases : Interest embedded in lease payments does not qualify.
  • Used cars : Only loans for new vehicles qualify under the current rules.
  • Very high earners : Once MAGI gets well above the phase‑out range, your deduction can drop to zero.

If you already deduct interest through business use of your car (mileage or actual expenses), you generally have to reduce the new personal deduction by any interest already claimed for business purposes.

How to claim it (high level)

For tax years 2025–2028, the process is expected to look roughly like this:

  1. Get your interest info :
    • For 2025, you may need a year‑end statement from your lender; later years will use a dedicated IRS form similar to Form 1098 (a new Form 1098‑VLI has been announced for reporting vehicle loan interest).
  1. Report on the new schedule :
    • Enter your qualified interest and vehicle information, including VIN , on a new attachment (described as Schedule 1‑A, Part IV in tax guides).
  1. File with Form 1040 :
    • The deduction flows to your main return as an adjustment to income.

What people are saying (forum vibe & “latest news”)

  • Policy angle (news) : Coverage in mid‑2025 framed this as part of a broader “mega tax‑and‑spending” package under President Donald Trump, aimed at helping “everyday” car buyers deal with high interest rates.
  • Consumer/auto sites : Outlets like Kelley Blue Book and H&R Block are emphasizing the strict eligibility criteria , pointing out that many used‑car and lease buyers won’t get anything.
  • Forum chatter : On car forums, users are swapping strategies like “front‑loading” purchases into 2025–2026 and running rough projections to see if the $10,000 cap plus phase‑outs actually beat just negotiating a lower rate or price. Some posters warn that dealers may try to use the deduction as a selling tool instead of lowering the APR.

“The deduction looks big on paper, but if you’re over the income phase‑out or buying used, it’s basically a nothing‑burger. Do the math before letting a dealer hype it.”

Practical takeaways

  • Run the numbers on:
    • Expected interest over the life of the loan.
    • Your MAGI and where you sit relative to the phase‑out.
    • Whether you already use the car heavily for business and deduct expenses there.
  • Keep VIN, purchase date, loan documents, and interest statements organized now, so you can claim the deduction accurately when filing your 2025 return in early 2026.
  • For edge cases (mixed personal/business use, high income, or multiple vehicles), a tax professional can help avoid double counting or missing part of the deduction.

TL;DR: The “car loan interest deduction” is now real but narrow: new, U.S.-assembled personal vehicles bought after 12/31/2024, up to $10,000 of interest per year, with income phase‑outs and no relief for leases or used cars.

Information gathered from public forums or data available on the internet and portrayed here.