Car Loan Interest Deduction

Car Loan Interest Deduction for 2025–2028

The One Big Beautiful Bill Act (OBBBA) introduces a new deduction for personal vehicle loan interest, creating a planning opportunity for households purchasing qualifying U.S. built vehicles. For the first time, certain personal auto loans may generate a federal deduction independent of business use rules.

This page outlines eligibility requirements, income limitations, deduction mechanics, and planning considerations for 2025 through 2028.

New Deduction for Personal Vehicle Loan Interest

Under OBBBA, taxpayers may deduct up to $10,000 of interest paid on qualifying auto loans for vehicles purchased and placed in service between 2025 and 2028. The deduction applies only to personal-use vehicles manufactured in the United States.

This represents a significant change from prior law, where personal vehicle loan interest has been nondeductible since the late 1980s.

Potential Tax Savings

The maximum deduction can generate meaningful tax savings depending on filing status and marginal tax bracket.

Example: Joint filers in the 32% bracket may save up to $3,200 when the full interest cap is utilized.

Because the deduction is capped, accurate interest reporting and year-end documentation are essential.

Income Limits and Eligibility Requirements

Eligibility for the deduction is subject to income limitations. For joint filers, the deduction phases out as Modified Adjusted Gross Income (MAGI) moves from approximately $200,000 to $250,000.

Other filing statuses will follow proportional limits once final Internal Revenue Services (IRS) guidance is issued.

Additional rules:

Applies only to personal-use vehicles.
Business-use automobiles remain subject to standard business auto rules, depreciation limits, and Section 280A interaction.

Vehicle Qualification Requirements

A qualifying vehicle must meet the following conditions:

Manufactured in the United States
Purchased and financed between 2025 and 2028
Contains a VIN that meets federal qualification criteria
Registered and used for personal rather than business purposes.

Proper documentation must be retained to verify vehicle origin, financing terms, and interest paid.

Planning Considerations Under OBBBA

Several planning factors influence the timing and value of this new deduction:

Interest Allocation
Only loan interest is deductible. Principal repayment is not.

MAGI Management
Taxpayers near the $200,000–$250,000 phaseout range may require income planning to preserve eligibility.

VIN Verification
Confirming U.S. manufacturing through VIN decoding helps ensure qualification before purchase.

Interaction With Itemized Deductions

Taxpayers who benefit from higher itemized deductions (including the expanded SALT deduction) may see additional value from this provision.

Request an Auto Loan Deduction Review

A technical review of vehicle eligibility, loan terms, MAGI thresholds, and deduction interactions supports accurate planning under OBBBA.

A review includes:

VIN eligibility confirmation.
Interest calculation and deduction timing.
MAGI phaseout exposure analysis.
Interaction with itemized deductions versus the standard deduction.
Documentation requirements for year-end filing.

Submit the form below to begin a detailed assessment and determine potential savings available under the car loan interest deduction.

Optimize Auto Loan Interest Deductions Under OBBBA

The new $10,000 auto loan interest deduction offers a rare opportunity for personal vehicle owners. A structured review identifies eligibility, income limitations, and documentation requirements necessary for accurate deduction planning.

Provide income and vehicle details to evaluate eligibility for the $10,000 interest deduction, confirm VIN compliance, and calculate potential savings under OBBBA.

Request My Auto Deduction Review