Car Loan Interest Deduction Under the OBBBA: How to Save on Your Taxes
The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, brings a new opportunity for taxpayers to save money. One of its standout provisions is a temporary deduction for interest paid on certain car loans. If you’re planning to buy a new vehicle in the next few years, this tax benefit could help reduce your costs.
In this article, we’ll break down how the deduction works, who qualifies, and what steps you need to take to claim it.
What Is the Car Loan Interest Deduction?
Under the OBBBA, taxpayers can deduct up to $10,000 annually in interest paid on qualifying auto loans. This deduction applies to vehicles purchased between 2025 and 2028 and is designed to encourage consumers to buy new cars assembled in the United States.
Unlike many deductions, you don’t need to itemize to claim this one, making it more accessible to a wider range of taxpayers.
Who Qualifies for the Deduction?
To qualify for the car loan interest deduction:
✅ The vehicle must be brand new, not used.
✅ The car’s final assembly must take place in the United States.
✅ The vehicle must be for personal use only.
✅ Commercial and fleet vehicles are not eligible.
Income Limits and Phaseouts
The deduction phases out for higher-income earners:
-
Single Filers:
-
Starts phasing out at $100,000 AGI.
-
Fully phased out at $150,000 AGI.
-
-
Married Filing Jointly:
-
Starts phasing out at $200,000 AGI.
-
Fully phased out at $250,000 AGI.
-
If your income exceeds these limits, you may qualify for only a partial deduction—or none at all.
How to Claim the Deduction
Here’s what you’ll need:
-
Vehicle Purchase Records – Keep copies of your sales contract and financing documents.
-
Lender Interest Statements – Obtain annual statements showing how much interest you paid.
-
Proof of Final Assembly Location – Check the vehicle’s window sticker or use the NHTSA VIN lookup tool to verify assembly in the U.S.
The IRS is expected to release a form to help taxpayers identify qualifying vehicles, similar to what’s used for electric vehicle tax credits.
Important Deadlines
This deduction applies only to vehicles purchased between 2025 and 2028. Unless Congress acts to extend it, the provision will expire at the end of 2028.
Key Takeaways
-
Deduction Amount: Up to $10,000 annually for interest on qualifying car loans.
-
Eligibility Window: Applies to vehicles purchased 2025–2028.
-
Assembly Requirement: New vehicles must be assembled in the United States.
-
Income Limits: Phases out for single filers above $100,000 AGI and married couples above $200,000 AGI.
-
No Itemization Required: You can claim this deduction even if you take the standard deduction.
If you’re thinking about buying a new car, now is the time to consider models that qualify under the OBBBA and take advantage of this limited-time tax savings opportunity.
