New Car Loan Interest Deduction: What OBBBA Means for Vehicle Buyers

New Car Loan Interest Deduction: What OBBBA Means for Vehicle Buyers

Buying a new car in 2025? You might be eligible for a tax deduction on the interest you pay. The One Big Beautiful Bill Act (OBBBA) introduces a new personal-use vehicle deduction that could save individual taxpayers up to $10,000—whether or not you itemize.

Overview

• For tax years beginning after 2024 and before 2029, individual taxpayers may claim a deduction of up to $10,000 for interest paid or accrued on a post-2024 loan used to purchase a qualified passenger vehicle for personal use. The deduction phases out when modified adjusted gross income exceeds $100,000 ($200,000 for joint filers) and is available to both itemizers and non-itemizers. Qualified passenger vehicles include new cars, minivans, vans, SUVs, pickup trucks, or motorcycles, provided final assembly occurs in the United States and all other criteria are met. Any person or business receiving $600 or more in such loan interest from an individual during a calendar year must file an information return and provide a statement to the payor to avoid penalties.

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  Key Details of the Car Loan Interest Deduction

  • Deduction Limit: Up to $10,000 per tax year
  • Eligibility Window: Applies to tax years 2025 through 2028
  • Income Phaseout: Begins when MAGI exceeds $100,000 (or $200,000 for joint filers)
  • Itemization Not Required: Available to taxpayers who do not itemize deductions
  • Qualified Vehicle Criteria:
  • - Must be new
  • - Final assembly must occur in the United States
  • - Includes cars, minivans, vans, SUVs, pickup trucks, and motorcycles
  • - Must meet additional IRS-defined requirements
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  Reporting Requirements for Lenders

  • Any person or business that receives $600 or more in applicable passenger vehicle loan interest from an individual in a calendar year must:
  • - File an information return with the IRS
  • - Furnish a statement to the payor
  • - Failure to comply may result in penalties
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  What This Means for Taxpayers

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  If you are considering purchasing a new vehicle for personal use, financing the purchase after 2024 may allow you to benefit from this deduction. The deduction is available whether or not you itemize your deductions, making it broadly accessible. To qualify, ensure that your vehicle meets the definition of a "qualified passenger vehicle" and that your lender supplies the necessary documentation required for claiming the deduction.
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Conclusion

As you plan your next vehicle purchase, be sure to review the requirements for this new deduction to maximize your potential tax savings. Every tax situation is unique, so consult a qualified tax professional to confirm your eligibility and ensure you’re taking full advantage of the benefits available under OBBBA. Smart planning today can help you drive away with bigger savings tomorrow.