New Car Tax Deduction - 2025
August 25, 2025 • 9 mins
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If you recently took out an auto loan to purchase a new car — or plan to — you might now be eligible for a federal tax deduction on the interest you pay.1
How do I qualify for a federal tax deduction on my car loan?
The new tax deduction, passed under the One Big Beautiful Bill Act (OBBBA), allows car buyers to write off up to $10,000 in loan interest on qualified vehicles for tax years 2025 through 2028. Not every vehicle or every loan qualifies, so it’s important to understand the criteria.
The new law may help you save on taxes if:
- You’re financing a new vehicle. Used, previously owned, and leased vehicles are not eligible.
- Original use of vehicle must begin with you, the taxpayer. You must be the first title holder.
- Your auto loan is a first lien loan. No other loans are secured by the vehicle.
- Your vehicle’s gross weight is less than 14,000 pounds. It can be a car, SUV, pickup truck, van, minivan, or motorcycle.
- Your car is for personal use, not for business or commercial use.
- Your vehicle underwent “final assembly” at a factory in the US. Many models by US automakers and well-known foreign automakers qualify. Keep in mind, however, that some vehicles by US automakers are finished overseas. You may need to do some sleuthing to determine where your car’s final assembly was done.
- Check the vehicle’s Monroney label (window sticker) at the dealership. It lists the car’s assembly plant, so you can confirm where it was assembled.
- Check the car’s VIN. If the car’s 17-digit VIN begins with 1, 4, or 5, it was assembled in the US. Other first digits — such as 2 for Canada, 3 for Mexico, J for Japan — were not assembled in the US. Check the National Highway Traffic Safety Administration’s VIN Decoder for help.
- Your car loan originated between January 1, 2025 and December 31, 2028. The bill expires after that.
- You pay $600 or more in annual interest on your auto loan.
- Your income meets certain criteria. The full write-off is available to single filers whose modified adjusted gross income (MAGI) is $100,000 or less, and to joint filers whose MAGI is $200,000 or less. For every $1,000 of additional income, the deduction tapers off by $200. Your MAGI is your total gross taxable income from all sources minus adjustments such as retirement contributions and student loan interest. Learn more about adjusted gross income.
Does the tax break apply to electric vehicles (EVs)?
Yes, electric vehicles qualify for the deduction if they were assembled in the US, weigh less than 14,000 pounds, and meet the other requirements.
Keep in mind that the Big Beautiful Bill will eliminate federal EV credits created by the Inflation Reduction Act in 2022. For most electric vehicles, those credits will end on September 30, 2025, so if you’re planning to buy an EV, consider doing so soon to reap those rewards. They include a $7,500 federal EV tax credit for plug-in or fuel-cell EVs or a $4,000 tax credit for used EVs, or a 30% discount on the sales price. (Some income restrictions apply.)
The federal credits will continue for a small number of EVs — those from automakers that haven’t yet sold 200,000 vehicles.
Get a tax break even when you refinance
If your auto loan qualifies for the new federal tax deduction and is later refinanced, you can generally claim the deduction for the interest that you paid on that refinanced amount.
Can I get a tax break if I take the standard deduction when filing my taxes?
Yes, this is an “above-the-line” deduction, meaning members can claim it even if they take the standard deduction and don’t itemize deductions when filing their taxes.
How much will I save on taxes?
The more interest you pay on a qualifying car loan, the more you’ll save. Most car buyers who qualify would save a few hundred dollars a year. If you have a high-interest loan and buy a $40,000 car, you might save close to $1,000, depending on factors like your APR, filing status, and income.
The legislation allows car buyers to write off up to $10,000 annually for the interest they pay, but most people won’t qualify to write off the full $10,000. To see that kind of savings, you’d likely need to take out a $110,000 car loan.
Will my lender help me figure out how much auto loan interest I paid?
Yes, your lender will file an information return with the IRS and will send you a statement showing the total amount of interest you paid during the tax year.
If you have an auto loan with Patelco, we’ll handle the IRS reporting for you — just make sure we have your current name, street address, Social Security number and your car’s Vehicle Identification Number (VIN), make, model, and year by January 31 of the tax year. You’ll need to include the Vehicle Identification Number (VIN) for the qualified vehicle on your tax return.
If you have any filing questions, contact the IRS or a tax advisor.
Sources:
IRS, “One Big Beautiful Bill Act: Tax deductions for working Americans and seniors,” July 14, 2025.
US Congress, “H.R.1 – One Big Beautiful Bill Act, 119th Congress (2025- 2026), accessed August 13.
Investopedia, “The ‘Big Beautiful Bill’ Might Include a Tax Break on Your Auto Loan—Here’s How to Find Out if You Qualify,” August 4, 2025.
Cars.com, “How Can You Tell if a Car Was Built in the U.S.?” April 22, 2025.
American Financial Services Association, “OBBB & Moving Metal,” accessed August 12, 2025.
IRS, “Definition of adjusted gross income,” accessed August 13, 2025.
AARP, “4 Ways the ‘One Big Beautiful Bill’ Could Change Your Tax Bill,” updated July 4, 2025.
Investopedia, “GOP Proposed a $10,000 Tax Break on Car Loans—With a Big Catch,” June 13, 2025.
AutoGuide, “How the ‘Big Beautiful Bill’ Could Save You $10,000 on Your Next Car,” July 7, 2025.
The New York Times, “Senate Bill Offers Interest Deduction for Buyers of American-Made Cars, July 2, 2025.
Forbes, “Here’s How Trump’s ‘One Big Beautiful Bill Act’ Would Affect Car Buyers and Owners,” June 3, 2025.
Kiplinger, “New GOP Car Loan Tax Deduction: Which Vehicles and Buyers Qualify,” accessed August 14, 2025.
Forbes, “The Big Beautiful Bill Cuts EV Tax Breaks—Here’s How Drivers Can Offset Costs,” July 8, 2025.
This article was created in accordance with the Patelco editorial policy.
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1 Patelco does not provide tax advice. For specifics about your tax situation, please contact a tax advisor.