Car Loan Interest Deduction Guide
Everything you need to know about the 2025 OBBB auto loan interest deduction
We wrote this guide from the One Big Beautiful Bill Act (signed July 4, 2025) to help new vehicle buyers understand this deduction. It covers interest only on loans for new vehicles whose final assembly took place in the United States.
Max Interest Deduction
Final Assembly Required
Modified AGI Phase-out Start (single / joint)
Effective Years
Can I deduct car loan interest on my taxes in 2025?
Yes, under the OBBB Act (2025-2028), you can deduct up to $10,000 in annual car loan interest for qualifying vehicles. The vehicle must be new (not used), purchased after December 31, 2024, and assembled in the United States.
- •Maximum deduction: $10,000 per year
- •Must be new, US-assembled vehicle
- •Verify assembly location with NHTSA VIN Decoder
- •Phase-out starts at $100K (single) / $200K (married)
Two different deductions — don’t confuse them
The car loan interest deduction on this page is a new below-the-line OBBB deduction for interest paid on a loan for a US-assembled personal vehicle. It is not the IRS standard mileage rate (72.5¢/76¢ per business mile in 2026), which covers fuel and operating costs for self-employed drivers on Schedule C. You can claim both in the same year — they measure different things.
Updated October 2026 — IRS Pub 6126 + final regulations
The IRS published Publication 6126 (January 2026) confirming eligibility: new personal-use vehicle, purchased 2025–2028, GVWR under 14,000 lbs, and final assembly in the United States. Final regulations (T.D. 10054, published September 8, 2026; effective November 9, 2026) apply to tax years 2025–2028. They require the vehicle to be bought for personal use (you expect more than 50% personal use at purchase), secured by a first lien, with the VIN on your return (Internal Revenue Bulletin 2026-39).
Verify before you sign: Decode the VIN at NHTSA VIN Decoder and confirm "Plant Country: United States." Dealerships don't track this — many U.S.-brand vehicles are assembled in Mexico or Canada and do not qualify. Sources: Pub 6126 (PDF), IR-2025-129, T.D. 10054 (IRB 2026-39).
The OBBB car loan interest deduction is one of the cleaner wins for working- and middle-class buyers — up to $10,000 of interest per year, below-the-line. But the vehicle assembly requirements are narrower than the marketing suggests, and you must verify VIN-by-VIN before signing.
Real-world scenario
Family finances a 2025 SUV, $42K loan, $3,400 first-year interest
VIN starts with '1', '4', or '5' (U.S.-assembled). Confirmed via NHTSA decoder. Their AGI is $145K MFJ — under the $200K phaseout. Full $3,400 of interest deductible below-the-line. At 22% marginal: $748 saved federally. The $10,000 cap applies to annual interest (not loan size), and $3,400 is well under it, so the full amount deducts.
The part most people miss
Just because a brand sounds 'American' (Ford, Chevy) doesn't mean the specific model qualifies. Many U.S. brand vehicles are assembled in Mexico or Canada and don't qualify. Always decode the VIN at nhtsa.gov/vin-decoder before signing — the dealership doesn't track this and will happily sell you a non-qualifying car without warning.
What Changed in 2025One Big Beautiful Bill Act
| Feature | Before OBBB (2024) | After OBBB (2025) | |
|---|---|---|---|
| Car Loan Interest Deduction | No deduction existed | Up to $10,000 deductible | |
| Eligibility | Interest not deductible | US-assembled new vehicles only | |
| Income Phase-Out (Single) | N/A | Starts at $100,000 | |
| Income Phase-Out (Married) | N/A | Starts at $200,000 |
Key Facts at a Glance
Maximum Deduction
$10,000
Effective Years
2025-2028
Phase-Out (Single)
$100,000
Phase-Out (Married)
$200,000
What is the Car Loan Interest Deduction?
The One Big Beautiful Bill Act (Public Law 119-21) created a new below-the-line deductionallowing taxpayers to deduct interest paid on car loans for qualifying vehicles. This deduction is designed to encourage Americans to purchase new, US-assembled vehicles.
You can deduct up to $10,000 per year in interest paid on qualifying auto loans. This is a below-the-line deduction, meaning you can claim it even if you take the standard deduction.
Vehicle Eligibility Requirements
All of the following requirements must be met for your vehicle to qualify:
- Loan originated after December 31, 2024
- Vehicle is original use by taxpayer (not used)
- Vehicle final assembly in the United States
- Must provide VIN on tax return
- Loan secured by lien on the vehicle
- Vehicle weight under 14,000 lbs
Examples of Qualifying Vehicles
Many popular vehicles are assembled in the United States. Here are some common examples:
Important: Always verify assembly location using the NHTSA VIN Decoder before claiming. Some models of the same vehicle may be assembled in different locations.
How to Verify US Assembly
You must provide the Vehicle Identification Number (VIN) on your tax return. Here's how to verify your vehicle qualifies:
- 1
Find your VIN
Located on your vehicle registration, insurance card, or driver's side dashboard.
- 2
Visit NHTSA VIN Decoder
Go to vpic.nhtsa.dot.gov/decoder/ and enter your VIN.
- 3
Check "Plant City" and "Plant Country"
The plant country should be "United States" for the vehicle to qualify.
- 4
Save verification for your records
Print or screenshot the results in case of an IRS inquiry.
Income Phase-Out Explained
The car loan interest deduction has lower phase-out thresholds than the tips and overtime deductions:
Single Filers
Phase-out begins above $100,000 MAGI
Deduction reduced $200 for each $1,000 or part of $1,000 over threshold
Fully phased out at $150,000 MAGI for the $10,000 maximum (any MAGI over $149,000 already gives $0)
Married Filing Jointly
Phase-out begins above $200,000 MAGI
Deduction reduced $200 for each $1,000 or part of $1,000 over threshold
Fully phased out at $250,000 MAGI for the $10,000 maximum (any MAGI over $249,000 already gives $0)
What Doesn't Qualify
- Used vehicles (even if US-assembled)
- Vehicles purchased before January 1, 2025
- Vehicles assembled outside the US
- Leased vehicles (only loans qualify)
- Vehicles with a GVWR of 14,000 lbs or more
- Cash purchases (no loan interest to deduct)
Calculate Your Car Loan Deduction
Use our free calculator to see exactly how much you can save with the car loan interest deduction.
Frequently Asked Questions
Related OBBB Calculators2025
Related OBBB Guides2025
Official Sources
Sources & References
Primary references used for this content
One Big Beautiful Bill Act
Statutory text for the 2025-2028 deductions
View on congress.gov
2026 Inflation Adjustments
Official 2026 brackets, deductions, and thresholds
View on irs.gov
Taxable income defined
Standard deduction and the below-the-line deduction list
View on law.cornell.edu
✓3 primary sources; links re-checked on a weekly rotation by the source watcher