Can You Deduct Car Loan Interest on Your Taxes?

Yes — for the first time in U.S. history, most car buyers can now deduct auto loan interest on their personal federal tax return. Under the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, eligible taxpayers may deduct up to $10,000 per year in interest paid on qualifying vehicle loans for tax years 2025 through 2028.

To qualify, you must meet all of the following:

• The vehicle must be new (not used or leased).

• The vehicle's final assembly must have occurred in the United States (check the window sticker or use the NHTSA VIN decoder to verify).

• The vehicle must be for personal use — not primarily for business or commercial purposes

• The loan must have been originated after December 31, 2024.

• The loan must be secured by the vehicle (a standard auto loan qualifies; a personal loan or home equity loan used to buy a car does not).

How much can you save? The deduction is available whether you itemize or take the standard deduction. If you paid $5,000 in qualifying interest in 2025 and are in the 22% federal tax bracket, you save approximately $1,100 in federal taxes.

Income limits: The deduction begins to phase out at $100,000 MAGI for single filers and $200,000 for married filing jointly. It is fully phased out at $150,000 (single) and $250,000 (joint).

What does NOT qualify:

• Used vehicle loans

• Lease payments

• Loans for commercial/business-use vehicles

• Loans originated before January 1, 2025

• Vehicles assembled outside the United States

Note: This deduction is temporary and expires after the 2028 tax year unless renewed by Congress. Consult a tax professional to confirm your eligibility.