If you've been thinking about buying a new car, truck, or motorcycle, there's some good news on the tax front. The One Big Beautiful Bill Act (OBBBA) created a brand-new deduction that could save you money on your taxes—but only for a limited time.
This temporary provision allows eligible taxpayers to deduct up to $10,000 per year in interest paid on loans for new, personal-use vehicles. Here's what you need to know to make the most of this opportunity.
What Makes This Deduction Special?
Prior to this new law, interest on personal vehicle loans wasn't deductible at all. Tax-deductible interest was limited to mortgages, investments, and student loans. This new provision changes that—temporarily—to provide tax relief while supporting the domestic automobile industry during a period of elevated vehicle prices and interest rates.
The best part? This is an "above-the-line" deduction, which means you can claim it whether you itemize deductions or take the standard deduction. It's available for tax years 2025 through 2028.
Do You Qualify?
To take advantage of this deduction, both you and your vehicle purchase must meet specific requirements.
Loan Requirements:
- The loan must originate after December 31, 2024
- The loan must be secured by a lien on the vehicle
- Loans from family members or related parties don't qualify
Vehicle Requirements:
- Must be new—you must be the first owner
- Must be for personal use only (not business or commercial)
- Must have a gross vehicle weight rating under 14,000 pounds
- Must be finally assembled in the United States (verified by VIN)
- Includes cars, minivans, SUVs, pickup trucks, vans, and motorcycles
- Used vehicles, leased vehicles, and salvage title vehicles don't qualify
Income Limits Apply
Like many tax benefits, this deduction phases out at higher income levels:
- Single filers: Phase-out begins at $100,000 modified adjusted gross income (MAGI), fully phased out at $150,000
- Married filing jointly: Phase-out begins at $200,000 MAGI, fully phased out at $250,000
The deduction reduces by $200 for every $1,000 of MAGI above the threshold.
Important Documentation
Keep excellent records if you plan to claim this deduction:
- Loan statements showing interest paid
- Vehicle documentation proving U.S. assembly
- Your lender will provide a 1098 statement showing annual interest paid
- You'll need to report the Vehicle Identification Number (VIN) on your tax return
The Bottom Line
If you're planning to purchase a new vehicle for personal use and meet the requirements, this temporary deduction could provide meaningful tax savings. However, the rules are specific, and the income limits mean not everyone will benefit.
Do you have questions about how the new auto loan interest deduction might work for your situation? Let's talk before you head to the dealership. Contact your accountant or our office at 614-891-5423 to discuss your specific circumstances and make sure you're positioned to take full advantage of this temporary but valuable tax break.