By Scott C. Cashman • February 10, 2026
One of the new deductions available to taxpayers as part of the One Big Beautiful Bill Act signed into law on July 4, 2025, is a new deduction for interest paid on automobile loans.
Effective for tax years 2025 through 2028, individuals may deduct interest paid on a loan used to purchase (not lease) a qualified vehicle.
As is the case with much of the recent tax legislation, whether a taxpayer receives a benefit or not depends on the details and phaseouts built into the new law. What the One Big Beautiful Bill Act appears to give with one hand can be taken away by the other. The new rule is clearly designed to promote the purchase of new cars manufactured in the U.S.
In general, the following requirements must be met for a taxpayer to receive a tax deduction on their car loan interest payments:
To qualify for the deduction, the interest must be paid on a loan that:
If a qualifying vehicle loan is later refinanced, interest paid on the refinanced amount is generally eligible for the deduction.
A qualifying vehicle must meet the following criteria:
If you otherwise qualify, this deduction will be available for both itemizing and non-itemizing taxpayers. However, be ready to include the Vehicle Identification Number (VIN) of the qualified vehicle on the tax return for any year in which the deduction is claimed.
The Internal Revenue Service has issued proposed regulations providing guidance on the car loan interest deduction.
Categorized: Taxes
Tagged In: automobile loans, One Big Beautiful Bill Act, tax legislation
Scott Cashman is the Tax Manager for the firm’s Estate, Financial and Tax Planning practice area. He is responsible for the preparation and oversight of all fiduciary, individual and corporate income returns as well as estate and gift tax and nonprofit tax compliance. Scott also represents clients in audits before federal and state taxing authorities.
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Scott Cashman is the Tax Manager for the firm’s Estate, Financial and Tax Planning practice area. He is responsible for the preparation and oversight of all fiduciary, individual and corporate income returns as well as estate and gift tax and nonprofit tax compliance. Scott also represents clients in audits before federal and state taxing authorities.
More Posts by Author ›
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