Qualify for the New Car Loan Interest Deduction: Claim Up to $10,000 Savings

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Home Car Advice How to Qualify for the New Car Loan Interest Deduction

Deducting Car Loan Interest: Quick Facts

• The “No Tax on Car Loan Interest” provision in the One Big Beautiful Bill Act (OBBBA) allows eligible new car buyers to deduct up to $10,000 in car loan interest per year.
• This deduction is only applicable to loans for the purchase of new cars made after Dec. 31, 2024.
• There are strict eligibility requirements, including income limits and U.S. final assembly requirements.

The “No Tax on Car Loan Interest” provision of the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, isn’t as simple as its title suggests. It does not automatically provide a tax break for interest on every car loan. Instead, only new car buyers who meet a specific set of qualifications can benefit.

Here are the essentials of this provision. You must meet all of the criteria in order to be eligible. If you miss even one, you don’t qualify.

New Car Loan Interest Deduction Qualifications Checklist

New Car Loan Interest Deduction Qualifications Checklist

• Your annual modified adjusted gross income (MAGI) is under $100,000 (or $200,000 for joint filers). The deduction phases out as income rises.
• Interest must be paid on a loan that originated after December 31, 2024.
• You are the first owner of the vehicle.
• The vehicle must be for personal use, not for business or commercial purposes.
• The loan is secured by a lien on the vehicle.
• The vehicle is a car, minivan, van, SUV, pick-up truck, or motorcycle with a gross vehicle weight rating (GVWR) of less than 14,000 pounds.
• The vehicle’s final assembly occurred in the United States.

If you meet all of the criteria, you may be able to claim the deduction. Always confirm your eligibility with a tax professional.

About Final Assembly

The new provision requires that eligible vehicles must have their final assembly in the United States. There are a few ways to tell where a car was assembled: 

• Dealer documentation: The final assembly location is listed on the vehicle’s window sticker or in sales material.
• VIN: Check the car’s vehicle identification number (VIN). A VIN beginning with 1, 4, 5, 7F-7Z, or 70 came from a U.S. assembly plant. 
• Online tools: Use AutoCheck or Carfax to learn more about the history of the car in question, or use the VIN Decoder from the National Highway Traffic Safety Administration (NHTSA) to confirm the car’s assembly location.

If you are in the market to buy a new car within the next few years and want to take advantage of this deduction, incorporate the U.S. assembly requirement into your initial research.

Important Considerations

Lease eligibilityInterest included in lease payments does not qualify for the deduction.  Maximum deduction The maximum deduction is $10,000 in qualified new car-loan interest per year. Deductions timeframeThis legislation applies through 2028. If new laws take effect, this deduction may not apply to the entire life of your loan. Refinancing If a qualifying vehicle loan is later refinanced, interest paid on the refinanced amount is generally eligible.  Itemizing The deduction is available whether you itemize or take the standard deduction. Ineligible vehiclesVehicles weighing 14,000 pounds or more are not eligible. Golf carts are ineligible.

Reporting and Guidance 

For tax year 2025, the IRS is providing transitional relief and lenders won’t be required to use a new tax form. However, lenders and any other recipients of qualified interest will still be required to provide borrowers with a statement by January 31, 2026, showing the total amount of interest paid on the qualified vehicle loan during 2025.

Borrowers will need this interest statement and the vehicle’s VIN to complete Schedule 1-A when filing a 2025 tax return. Consult a tax professional to confirm eligibility and ensure compliance with current IRS guidance.

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  Lauren Swift is Senior Editor with Kelley Blue Book’s Digital Operations team, where she creates multimedia automotive content. Prior to her current role, she was a contributing writer and editor for national publications including U.S. News & World Report, USA Today Blueprint, and Consumer Affairs. Lauren began her career as a freelance writer and editor. She then transitioned into a role as a senior editor for a marketing and SEO agency, where she worked on strategic blogging and SEO campaigns. She is also a dedicated creative writer and has edited and contributed to numerous literary magazines. She’s committed to developing sharp, informative, and creative automotive content that’s for humans, by humans. In her free time, you can find her making crochet masterpieces and pretending she’s a contestant on baking competition shows. 

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