Daperis CPAThe New Auto Loan Interest Deduction: What Actually Qualifies
Buy a car with a loan, and normally the interest isn't deductible at all. That changed for vehicles bought after the end of 2024, but only for a limited time, and only if the vehicle checks several boxes most people won't think to check at the dealership.
What's Actually Available
For 2025 through 2028 only, you can deduct interest on a loan for a personal vehicle, up to $10,000 a year. You get this whether or not you itemize, which makes it more useful than most vehicle tax breaks.
That's the good news. The requirements are specific enough that plenty of car buyers will assume they qualify and find out later they don't.
The Requirements
The vehicle has to be a car, minivan, van, SUV, pickup, or motorcycle (weighing under 14,000 lbs GVWR) bought after December 31, 2024. It has to be new, meaning you're the very first owner, a used vehicle doesn't qualify even with a few thousand miles on it. And it has to be finally assembled in the United States, which isn't obvious from the model name and needs to be checked, usually through the VIN or the manufacturer's paperwork, before you assume a specific vehicle counts. If you refinance a loan for a qualifying vehicle, the interest remains deductible as long as the original loan met all criteria.
It also has to be for your own personal use. A vehicle you buy for the business runs through completely different rules, covered elsewhere.
The Income Cutoff
The deduction starts shrinking once your income passes $100,000 ($200,000 if married filing jointly) and is fully phased out at $150,000 (single) and $250,000 (married filing jointly). If your income is well above that, this may not be available to you at all, no matter what you buy or how proud you are of the badge on the hood.
Why the "Made in America" Part Trips People Up
This is the easiest part to get wrong, and the one that trips up the most confident buyers. Plenty of vehicles from brands people think of as American are actually assembled outside the U.S. for certain trims or model years, and the reverse is true too. The badge on the car tells you almost nothing. If this deduction matters to your decision, check the assembly location for the exact vehicle, trim, and model year you're buying, not just the brand, before you sign anything.
It Won't Last Forever
This one has a real end date, 2025 through 2028, unlike a lot of "temporary" tax provisions that keep getting extended year after year until nobody remembers they were ever temporary. Nobody can say for sure whether this one gets the same treatment. If this deduction is part of your decision to buy now instead of later, treat the current window as what you have, not as something you can count on down the road.
Documentation You'll Need
To claim this deduction, you don't need to do anything extra at the dealership, but keep an eye on your mailbox come tax season. For tax years 2026 and later, lenders are required to issue Form 1098-VLI (Vehicle Loan Interest Statement) if the interest received was over $600. This form serves as your official record of the interest paid on your qualifying loan and makes filing straightforward. If you don't receive this form by early February, reach out to your lender immediately, as it is the critical piece of documentation you'll need to substantiate your claim. You will need to report the vehicle's VIN directly on your tax return to claim this deduction.
Keep It Simple / Key Takeaway 🍕
This is a real deduction, but a narrow one: new vehicle, made in the U.S., personal use, and income under the cutoff. If you're planning a vehicle purchase and think you might qualify, check the assembly location and run your income against the cutoff before you count on this as part of your financing plan.
Disclaimer: This article is for educational and informational purposes only and is not intended as financial, investment, legal, or tax advice. The author assumes no liability whatsoever in connection with its use. This content is not an exhaustive explanation of any topic, practice or process. You should always seek the advice of a licensed professional before making any accounting, tax, financial, investment or legal decision.