On the Dash:
- Buyers of new, U.S.-assembled vehicles purchased in 2025 may deduct up to $10,000 a year in auto loan interest under new IRS guidance.
- Eligibility is limited by income caps, vehicle use rules, and exclusions for used vehicles, leases, and commercial purchases.
- Savings are expected to be modest for most taxpayers, with analysts projecting only a few hundred dollars in first-year benefits.
Consumers who purchased a new vehicle in 2025 may qualify for a tax break during the upcoming filing season, according to updated guidance issued Wednesday by the Internal Revenue Service. Under the “No Tax on Car Loan Interest” provision enacted under the One Big Beautiful Bill Act (OBBBA), eligible buyers can deduct up to $10,000 annually in interest paid on a qualifying auto loan.
The deduction applies to new vehicles that are final assembled in the United States and purchased between 2025 and the end of 2028. To qualify, the vehicle must be new, intended for personal use, and financed through an auto loan issued after Dec. 31, 2024.
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At the time of purchase, the vehicle must be used for personal purposes by the buyer or a household member for at least half of the time. If the vehicle later shifts to commercial use, it will remain eligible for the deduction as long as it met the personal-use requirement at purchase.
Taxpayers can verify their vehicle’s final assembly location by entering the VIN number into the National Highway Traffic Safety Administration’s VIN Decoder.
While the deduction could slightly improve vehicle affordability, eligibility restrictions limit its reach. Pre-owned, commercial vehicles and fleet purchases are excluded. Lease payments also do not qualify, and the deduction is capped at $10,000 annually.
The income threshold further narrows eligibility. The deduction begins to phase out for single filers earning more than $100,000 and for married couples filing jointly earning more than $200,000.
The provision also includes reporting requirements for lenders. Going forward, any lender collecting at least $600 in interest from a borrower in a calendar year must file the appropriate return with the IRS and provide the borrower with the same information. For 2025, lenders may meet this requirement by supplying borrowers with the total interest paid for the year.
The tax cut is projected to cost $31 billion over 10 years. Analysts expect individual savings to be modest, with most qualifying taxpayers saving only a few hundred dollars in the first year. Lower-income households, which are more likely to purchase used vehicles, are unlikely to benefit from the deduction.
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