You may be eligible for a new tax deduction this filing season if you purchased a new vehicle with a car loan. A provision in recent tax legislation now allows qualified taxpayers to deduct interest paid on certain auto loans, which could help reduce taxable income.
The deduction allows taxpayers to deduct up to $10,000 per year in car loan interest, as long as the loan was used to purchase a new personal vehicle that was assembled in the United States after December 31, 2024. This deduction applies whether you itemize your deductions or take the standard deduction, making it available to more taxpayers than many other deductions. However, income limits do apply, and the deduction begins to phase out for individuals earning over $100,000 or couples earning over $200,000.
To claim the deduction, taxpayers must confirm the vehicle’s final assembly took place in the United States. This can be verified by checking the vehicle label, the vehicle identification number (VIN), or using the National Highway Traffic Safety Administration VIN Decoder. The VIN must be included on your tax return each year you claim the deduction.
This deduction applies starting with the 2025 tax year and is currently scheduled to remain available through 2028 unless extended by Congress. If you recently financed a new vehicle, you may want to check if you qualify and speak with a tax professional for guidance.
