IRS Announces New Car Loan Interest Deduction: How to Qualify in 2025–2028

   The IRS has rolled out a new tax deduction on car loan interest, a benefit that could save American taxpayers thousands of dollars.

This deduction, part of the federal One, Big, Beautiful Bill, applies to interest paid on loans for new U.S.-manufactured vehicles purchased for personal use after December 31, 2024. 
 

What You Can Deduct

• Up to $10,000 per year in car loan interest.

• Applies whether you take the standard deduction or itemize.

• Available for vehicles purchased between January 1, 2025 and December 31, 2028.

Married couples filing separately can each claim the $10,000 limit individually.

Eligibility Requirements

To qualify, your car must:

• Be brand new.

• Have final assembly in the United States (check your VIN on the NHTSA site).

• Be purchased primarily for personal use.

• Be financed with a loan that meets IRS criteria.

Income Limits

• Single filers: Full deduction up to $100,000 MAGI.

• Married couples: Full deduction up to $200,000 MAGI.

• Deduction phases out by $200 for every $1,000 above these limits.

Read: US Minimum Wage 2026: Full State-by-State Breakdown

How Much Could You Save?

Experts estimate savings in the hundreds or thousands:

• A typical buyer could deduct around $4,000.

• With a 6.5% six‑year loan, deductions could reach $3,000 in the first year and about $1,800 annually thereafter.

This comes at a time when average monthly car payments hover around $750 and auto loan delinquencies are rising.

How to Claim the Deduction

The IRS is finalizing details, but here’s what to prepare:

• Gather loan statements.

• Complete Annex 1‑A with loan info and VIN.

• Submit with your federal tax return.

Lenders will also file information returns with the IRS to verify interest paid.

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