Interest on new car loans is now tax deductible up to $10,000
For the 2025 tax year, eligible U.S. taxpayers can deduct up to $10,000 in auto loan interest under a temporary provision enacted under President Donald Trump’s One Big Beautiful Bill Act.
However, most eligible borrowers will deduct much less, largely because even jumbo auto loans don’t generate close to $10,000 in interest in a single year. That figure is closer to what borrowers typically pay in total interest over the life of a 72-month new car loan. According to Edmundsa car shopping and automotive data company.
Instead, for most borrowers, the deduction is more likely to yield tax savings measured in hundreds of dollars a year rather than thousands, according to automotive research firm Cox Automotive.
Eligibility rules further narrow who can claim the deduction; because this rebate only applies to newly purchased vehicles financed after December 31, 2024, excludes foreign-assembled cars, and is phased out for higher income earners.
“This tax credit is limited, will not move the market, and is not a tool to significantly address the affordability challenges and high interest rates facing our market,” Cox Automotive chief economist Jeremy Robb told CNBC Make It.
Who can benefit from vehicle loan interest deduction?
Vehicle loan interest cut was in 2024 Trump’s campaign promise went into effect July 4, 2025, under the One Big Good Bill Act. The deduction itself is temporary and applies only to tax years 2025 through 2028.
The deduction only applies to loans that meet the following conditions: Per Internal Revenue Service:
- The loan must be used after December 31, 2024 and must be secured by the vehicle.
- The vehicle must be new; Loans for used vehicles are not valid.
- The vehicle must be for personal use and not for business or commercial use.
- Eligible vehicles include cars, minivans, pickup trucks, SUVs, pickup trucks and motorcycles with a gross vehicle weight of less than 14,000 pounds.
- The vehicle must have undergone final assembly in the United States. That accounts for about 50% of vehicles sold in the U.S., according to Cox.
The $10,000 maximum deduction phases out at higher income levels. For single filers, the phaseout begins at $100,000 of modified adjusted gross income and ends at $150,000. For married couples filing jointly, the phase-out starts at $200,000 and ends at $250,000. According to the IRS.
Although eligibility is limited by income and means rules, eligible taxpayers can claim a break whether they itemize deductions or take the standard deduction.
Why can’t most buyers get close to $10,000?
Even among those who qualify, very few buyers will see their tax bill reduced by close to $10,000.
A 72-month new car loan with a 9.5% interest rate and 12.5% down payment on a $48,000 vehicle will generate roughly $3,800 in interest in the first year, according to analysis from Cox Automotive. Interest costs drop to about $3,200 in the second year and to about $2,600 in the third year.
Although the entire interest amount is deductible, it reduces only the taxable portion of the income, not the dollar-for-dollar tax liability. As a result, the actual tax savings are smaller than the interest paid.
Assuming the federal tax rate for new vehicle buyers is about 15% to 20%, the first-year deduction would mean a tax savings of less than $750, according to Cox Automotive calculations. In the second year, savings will drop to approximately $640 as interest costs decrease.
Robb says it takes a loan of about $112,000 to get $10,000 in deductible interest in the first year alone.
How can you claim the deduction on your tax return?
Deduction requested Table 1-AUpdated supplement to Form 1040 that tax software will automatically complete for most filers.
Taxpayers must include the vehicle identification number, or VIN, on their tax returns for any year in which the deduction is claimed. VIN is a 17-character number that usually appears on the driver’s side of the dashboard, near the windshield, or inside the driver’s door frame, and it also appears on vehicle documentation such as the title or insurance card.
Buyers are from the National Highway Traffic Safety Administration. VIN DecoderFinally, , which identifies a vehicle’s assembly plant to verify whether it was assembled in the United States.
Lenders must provide borrowers with a statement showing the total amount of interest paid on a qualified auto loan.
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