Car Loan Interest Tax Deduction

Starting January 1, 2025, a new federal tax change could impact your next tax return.

The new law allows car buyers to deduct up to $10,000 per year, per tax return, in car loan interest if they buy a brand-new, U.S.-(final)assembled vehicle between 2025 and 2028. This deduction is above the line, so it still applies if car buyers take the standard deduction.

That said, not all vehicles qualify, and this isn't a universal benefit.

Here's what counts:

• Brand-new vehicles: never registered and never titled
• Loan must be originated on or after January 1, 2025
• Must have final assembly in the U.S.
• Must be under 14,000 lbs (so most cars, SUVs, and light trucks)
• Loan must be in buyers name and used for personal, not business, use
• Buyers must fall under the income limits (see below)

What doesn't count:

• Used cars
• Leased vehicles
• Loans from relatives
• Foreign-assembled models
• Commercial-use vehicles
• High-income earners above these thresholds:

• $100k–$150k adjusted gross income (AGI) if filing single
• $200k–$250k AGI if filing jointly
• (Above the phaseout range? You won't get the deduction.)

Loans originated before January 1, 2025 don't qualify, even if interest payments continue into 2025.

But be careful:

This tax break doesn't mean buyers should jump into a bad loan or overpay for a new car. As always, the key is finding a great deal on a vehicle that actually fits your needs and that's where YourCarHaggler.com comes in.

The tax deduction is scheduled to end 2028. So, if you take a car loan in November 2028, you can only deduct November and December 2028 car interest utilizing this new law.