The One Big Beautiful Bill Act (OBBBA) created a new federal deduction for car loan interest — up to $10,000 a year for tax years 2025 through 2028. It's easy to assume this applies to any car payment, but three eligibility rules disqualify a lot of buyers before the math even starts. Here's what actually qualifies, plus a free Auto Loan Interest Deduction calculator.
Is car loan interest tax deductible for your vehicle?
Only if all three of these are true: the vehicle is new (not used, and not a lease), it was assembled in the United States for its final assembly step (regardless of the brand's home country — some imported-brand models built at US plants qualify, while some US-brand models built abroad don't), and the loan originated after December 31, 2024. Miss any one of these and the deduction is $0, no matter how much interest you're paying.
VIN requirement for the car loan tax deduction
You have to report the vehicle's VIN on your tax return when you claim this deduction, and the IRS has pointed taxpayers to the National Highway Traffic Safety Administration's VIN Decoder to confirm a vehicle's final assembly location before assuming it qualifies. Lenders are also required to start filing information returns reporting the interest they received on qualifying vehicle loans, which the IRS will cross-check against what you claim.
How much can you actually save
The deduction is capped at $10,000/year of interest paid (not principal) — and only interest, so a loan with a small balance late in its term may not get you close to the cap. It phases out $200 for every $1,000 your MAGI exceeds $100,000 (single) or $200,000 (joint), fully disappearing at $150,000 single / $250,000 joint. Like the tips and overtime deductions, it's above-the-line, so you get it whether or not you itemize.
What doesn't qualify
Leases are excluded entirely — only a purchase loan counts. Used vehicles don't qualify even if everything else checks out. And this is a federal deduction only; it doesn't change what you owe in state income tax.
Try the Auto Loan Interest Deduction Calculator → · Need your monthly payment and amortization first? See the Auto Loan Calculator.
Sources: IRS, "Treasury, IRS provide guidance on the new deduction for car loan interest under the One, Big, Beautiful Bill"; Bipartisan Policy Center, "The Auto Loan Interest Deduction: How Claiming and Reporting Work"; TurboTax, "IRS Rules for the One Big Beautiful Bill Car Loan Interest Deduction." This is general information, not tax advice — confirm your specific situation with a tax professional or the IRS.
