Jason Innerfield •
Beginning in 2025, individuals may qualify for a new federal tax deduction for interest paid on a personal auto loan, thanks to recent changes in federal tax law. This deduction is available even if the vehicle is for personal use only, marking a major shift from prior rules.
Beginning in 2025, individuals may qualify for a new federal tax deduction for interest paid on a personal auto loan, thanks to recent changes in federal tax law. This deduction is available even if the vehicle is for personal use only, marking a major shift from prior rules.
What Changed?
Until now, interest on personal car loans wasn’t deductible. But for tax years 2025 through 2028, you may deduct up to $10,000/year in auto loan interest. This deduction is available for both itemizing and non-itemizing taxpayers.
Who’s Eligible?
To qualify:
To confirm U.S. assembly, please refer to the following two options:
To make sure your car qualifies, you need to check where it was built:
To Recap
Why It Matters
This is the first time in years that personal auto loan interest is deductible. If you're planning to buy a new car in 2025 or beyond, this tax deduction could offer meaningful savings.
For More Information
For further analysis and a full breakdown of the deduction, refer to The IRS Fact Sheet (FS 2025‑03): One Big Beautiful Bill Act: Tax deductions for working Americans and seniors
Until now, interest on personal car loans wasn’t deductible. But for tax years 2025 through 2028, you may deduct up to $10,000/year in auto loan interest. This deduction is available for both itemizing and non-itemizing taxpayers.
Who’s Eligible?
To qualify:
- Purchases need to be made after December 31, 2024 through 2028
- The vehicle must be a car, SUV, van, pickup truck, motorcycle
- Have a gross vehicle weight under 14,000 lbs
- The vehicle must be new and assembled in the U.S.
- The financing/loan must be used to purchase the vehicle
- The car must be for personal use only
- If you use a personal vehicle and claim mileage reimbursement on Schedule C, please consult your tax advisor for guidance
- Your income must fall below phaseout thresholds: $100K (single), $200K (married filing jointly)
To confirm U.S. assembly, please refer to the following two options:
To make sure your car qualifies, you need to check where it was built:
- Option 1: Decode the VIN
- The first character of your VIN tells you the country:
- 1, 4, or 5 = Assembled in the U.S.
- 2 = Canada, 3 = Mexico, other letters = other countries
- You can find your VIN:
- On your dashboard (visible through the windshield)
- Inside the driver’s side door
- On your registration or insurance paperwork
- The first character of your VIN tells you the country:
- Option 2: Use the Free NHTSA VIN Decoder
- Go to https://vpic.nhtsa.dot.gov/decoder
- Enter your 17-digit VIN and model year to see the assembly plant location
To Recap
- This new deduction does not require you to itemize; it can be claimed regardless of whether you take the standard deduction.
- There is currently no specific IRS form like Form 1098 for reporting auto loan interest. However, lenders or other recipients of qualified interest must file information returns with the IRS and furnish statements to taxpayers showing the total amount of interest received during the taxable year.
- To claim the deduction, you'll need to document the interest you paid on your auto loan.
- Provide the Form from the lender, along with your vehicle’s VIN to prove eligibility.
- When filing your taxes, you will report the deductible interest on a designated line (exact IRS instructions and form details are expected to be released closer to the 2025 tax season).
Why It Matters
This is the first time in years that personal auto loan interest is deductible. If you're planning to buy a new car in 2025 or beyond, this tax deduction could offer meaningful savings.
For More Information
For further analysis and a full breakdown of the deduction, refer to The IRS Fact Sheet (FS 2025‑03): One Big Beautiful Bill Act: Tax deductions for working Americans and seniors
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