This filing season a new tax deduction lets some taxpayers deduct interest paid on auto loans for new cars bought after Dec. 31, 2024. The provision is part of the One Big Beautiful Bill Act, which also changed rules on taxes for tips and overtime and eliminated a federal electric vehicle purchase credit.
Who qualifies
– New cars only: The deduction applies only to vehicles bought new after Dec. 31, 2024. Loans taken out before that date do not qualify. Used-car purchases are excluded.
– Income limits: The deduction phases out for single filers with a modified adjusted gross income (MAGI) of $100,000 or more. For married couples filing jointly, the phaseout begins at $200,000. MAGI is calculated after certain deductions (for example, tax-deductible retirement contributions), and taxpayers near the limits may be eligible for a partial deduction.
– Assembly location and use: The vehicle must have undergone final assembly in the United States. You can check this using the vehicle identification number (VIN). The car must be for personal use—not for business.
How much you can deduct
– Up to $10,000 of interest paid per year can be deducted if both the buyer and vehicle qualify.
– You’ll need to review your 2025 auto loan statements to total the interest you paid; lenders are not sending a separate tax document for this deduction.
– This is a tax deduction (reduces taxable income), not a tax credit (which reduces tax liability dollar for dollar). For example, a $1,000 interest deduction reduces taxable income by $1,000; if you’re in the 22% tax bracket, the deduction’s value is roughly $220.
Other important details
– The deduction is allowed even if you take the standard deduction, unlike many other interest-related deductions that require itemizing.
– The rule doesn’t apply to leases, buyers who used 0% financing, or loans taken out before the cutoff date.
Likely impact on domestic manufacturing
– The deduction is limited in scope and amount, so experts say it’s unlikely to be a major incentive that shifts where automakers build vehicles. It may influence some buyers who weigh a U.S.-assembled model against an imported one, but it’s not large enough to be a decisive factor for most manufacturers or shoppers.
– Still, for eligible buyers it provides a modest financial benefit without making anyone worse off if they don’t qualify.