The $10,000 Car Loan Tax Deduction: Who Qualifies and How to Claim It

A new tax break is available this filing season for taxpayers with car loans on vehicles that meet specific criteria.

The One Big Beautiful Bill Act (OBBBA), passed through Congress by Republicans using the reconciliation process and signed into law last year by President Donald Trump, includes a provision allowing interest on car loans to be deducted under certain conditions.

The IRS has issued guidance on implementing the "No Tax on Car Loan Interest" provision of the OBBBA. This applies to loans taken out to purchase new personal vehicles — not business or commercial vehicles — that were made in America after December 31, 2024. Lease payments do not qualify.

Taxpayers with qualifying auto loans may deduct up to $10,000 per year in interest. This deduction is available to both those who itemize deductions and those who claim the standard deduction on their tax returns.

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The auto loan interest deduction is retroactive to the 2025 tax year for eligible loans. (Daniel Acker/Bloomberg via Getty Images)

The deduction is subject to income limits and phases out for taxpayers with modified adjusted gross incomes over $100,000 for single filers or $200,000 for joint filers.

Like other tax deductions, this deduction reduces taxable income by the amount of interest paid up to the $10,000 annual limit, so the actual tax savings will be less than the full deduction amount.

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Taxpayers claiming the deduction must include their vehicle's VIN when filing their tax returns. (General Motors)

Under the OBBBA, the deduction applies only to vehicles that underwent final assembly in the U.S.

To verify a vehicle’s final assembly location, taxpayers should check the vehicle label at the dealership, the vehicle identification number (VIN), or use the National Highway Traffic Safety Administration's VIN Decoder.

The vehicle's VIN must be included on tax returns for each year the deduction is claimed.

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New vehicles that underwent final assembly in the U.S. qualify for the deduction. (Emily Elconin/Bloomberg via Getty Images)

If a qualifying auto loan is refinanced, interest paid on the refinanced loan generally remains eligible for the deduction.

The deduction applies retroactively to the 2025 tax year, covering eligible interest payments made after December 31, 2024.

The OBBBA includes several temporary tax provisions designed to comply with Congress' reconciliation rules, which will expire after a few years.

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The auto loan interest deduction is one such temporary provision, set to remain in effect through the end of 2028 unless Congress decides to extend it.