A new federal law – the One, Big, Beautiful Bill Act – created a temporary tax break for people who finance a new vehicle. For the first time, many borrowers may be able to deduct the interest they pay on their auto loan when they file their federal taxes. 

What is the Deduction?

If you buy a new, qualifying vehicle and finance it with a loan that started after December 31, 2024, you may be able to:

• Deduct up to $10,000 per year in auto loan interest
• Take the deduction even if you use the standard deduction
• Claim it for tax years 2025 through 2028

Who Qualifies?

In order to be eligible, the vehicle:

• Is a car, SUV, pickup truck, van or motorcycle with a gross weight under 14,000 pounds
• Must be brand new (not used)
• Must be for personal use, not business
• Must have the final assembly completed in the Unites States (verified by VIN number or manufacturer label)
• Loan must be a qualifying auto loan. Leases do not count

There are also income limits:

• Full deduction up to $100,000 (single filers)
• Full deduction up to $200,000 (married, filing jointly)
• The deduction decreases for higher incomes

What This Could Mean for You

Auto loan interest can add up over time. This tax break may help lower the overall cost of buying a new car.

For example, if you paid $8,000 in auto loan interest in one year and are eligible, you could deduct that amount on your tax return.

What Should You Do?

• Keep your loan and interest statements
• Confirm if your vehicle qualifies 
• Talk to a tax professional about your personal situation  

For more information, visit the IRS Website.