Can You Deduct Car Loan Interest in 2025? New Rules Explained

Thinking about buying a new car in 2025? A new tax break may help reduce the cost of financing. Under the One Big Beautiful Bill Act (OBBBA), some taxpayers will be able to deduct interest paid on personal auto loans—even if they do not itemize. This car loan interest tax deduction could offer meaningful savings through 2028.

What’s Changed?

In the past, interest on a personal car loan was not tax-deductible. It was simply another expense. Beginning in 2025, however, OBBBA allows you to deduct up to $10,000 per year in interest on a qualifying car loan used to purchase a personal vehicle. This temporary provision applies from 2025 through 2028.

Who Can Take This Deduction?

To take advantage of this deduction, you must meet several requirements:

• The loan has to be for a new, U.S.-assembled passenger vehicle. Used cars and imports don’t qualify.
• The loan must be secured by a first lien on the car, and the loan may not be from a family member.
• The car must be for personal use.
• The loan must be taken out after December 31, 2024.
• There are income limits: If your modified adjusted gross income (MAGI) is over $100,000 (or $200,000 for joint filers), the deduction starts to phase out. For every $1,000 over the limit, you lose $200 of the deduction.

How Do You Claim It?

• This deduction is “above the line,” so you can take it even if you use the standard deduction.
• If you pay $600 or more in interest in a year, your lender will send you a statement at year-end.
• You will enter this amount on your federal income tax return beginning in tax year 2025.

How Long Does This Last?

This is a temporary deduction for tax years 2025 through 2028. Unless Congress decides to extend it, the deduction will disappear after 2028.

Additional Tax Planning Considerations

This provision is one of several tax law changes introduced in recent years. If you are already considering buying a new vehicle, it may be worth reviewing other incentives such as the federal EV tax credit for electric vehicles. These savings can add up quickly when paired with smart financing decisions.

You may also want to read our recent article on energy-efficient home tax credits if you are exploring ways to reduce your overall tax burden.

Questions about how this applies to you?

Contact our office to review whether the car loan interest tax deduction makes sense for your situation and how to take advantage of other opportunities introduced in the new legislation.

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