Federal Auto Loan Interest Deduction

(2025–2028)

How the Auto Loan Interest Deduction Works

Under recent federal tax law changes (H.R. 1, also known as the One Big Beautiful Bill Act), qualified buyers may be able to lower their taxable income by deducting up to $10,000 per year in interest paid on a qualifying auto loan for a new personal vehicle.

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Key Benefits

Up to $10,000 in Interest Savings

If you meet the rules, you can deduct up to $10,000 of the interest you pay on a qualifying auto loan from your federal income tax.

Applies to U.S.-Assembled Vehicles

To be eligible, the vehicle must have its final assembly in the United States — supporting domestic auto manufacturing.

Available for Tax Years 2025–2028

This deduction applies to interest paid during tax years 2025 through 2028 on qualifying auto loans first taken out after December 31, 2024.

Who Can Claim This Deduction?

To qualify for this federal tax break, all of the following must be true:

The vehicle was purchased new (used or leased vehicles do not qualify).
The loan originated after December 31, 2024 and is secured by a lien on the vehicle.
The vehicle is for personal use, not for business or fleet purposes.
You include the vehicle’s VIN when you file your tax return.

If you refinance a qualifying loan, the interest on the refinanced portion typically remains eligible for the deduction.

What Vehicles Might Be Eligible?

A qualifying vehicle generally must:

Be a car, SUV, pickup truck, minivan, van, or motorcycle with a gross vehicle weight rating of under 14,000 lbs.
Have undergone final assembly in the United States (this may include some foreign-brand vehicles assembled domestically).

Vehicles that cannot qualify include:

Used cars or trucks, even if new to you.
Leased vehicles.

Income Limits and Phase-Outs

The full $10,000 deduction is available for taxpayers whose modified adjusted gross income (MAGI) falls below certain thresholds. Above those limits, the deduction is reduced and eventually eliminated.

Single: Full Deduction Threshold- $100,000, Phase-Out Range- $100,001–$149,000, No Deduction Above – $149,000+

Married Filing Jointly: Full Deduction Threshold-$200,000, Phase-Out Range – $200,001–$249,000, No Deduction – $249,000+

The phase-out typically reduces your available deduction gradually as income rises above the lower threshold.

Federal Auto Loan Interest Tax Deduction At Delaney Subaru in Indiana, PA | Person showing a couple a folder of the federal auto loan options available at dealership

Important Notes

This is an above-the-line deduction, meaning you can claim it whether you itemize deductions or take the standard deduction.
Qualifying interest is limited to the interest portion of your auto loan — principal payments aren’t deductible.
The tax benefit applies only through 2028 unless Congress extends it.

Next Steps

Before claiming this deduction on your federal tax return:

Make sure your vehicle meets the eligibility rules.
Collect documentation showing your loan interest and vehicle details (including VIN).
Consult a tax professional if you have questions about phase-outs or filing.

Our team can also help you explore your financing options and find new vehicles that might qualify — ask us today!

Disclaimer: We are not tax professionals, please consult your tax advisor for further information.