There’s a new tax deduction this filing season for some buyers who took out loans to buy new cars in 2025. The provision is part of the One Big Beautiful Bill Act, which also removed taxes on tips and overtime for qualifying workers and eliminated a tax credit for buying electric vehicles.
Who is eligible
– Purchase date: The deduction only applies to new vehicles purchased after Dec. 31, 2024. Loans taken out before that date don’t qualify, and used-vehicle purchases are excluded.
– Income limits: The deduction phases out based on modified adjusted gross income (MAGI). For single filers the phaseout begins at $100,000, and for married couples filing jointly it begins at $200,000. MAGI is calculated after certain adjustments (for example, tax-deductible retirement contributions), and taxpayers near the thresholds may still claim a partial deduction because the phaseout is gradual.
– Assembly and use: The vehicle’s final assembly must have occurred in the United States. You can confirm that with the vehicle identification number (VIN). Brand names aren’t a guarantee of U.S. assembly. The car must be for personal use; vehicles used for business do not qualify.
What the deduction covers
– Amount: If you and the vehicle qualify, you may deduct up to $10,000 of interest paid on the auto loan per year.
– Documentation: Lenders are not required to provide a special tax form for this deduction. You should review your 2025 loan statements to calculate total interest paid during the year.
– Tax impact: This is a tax deduction, not a tax credit, so it reduces taxable income rather than directly reducing tax owed. For example, $1,000 in deductible interest is worth about $220 at a 22% marginal tax rate.
– Standard deduction: Unlike some interest deductions, this one can be claimed even if you take the standard deduction.
What it does not cover and its likely effects
– Exclusions: Leases are not eligible, and buyers who had 0% financing or paid cash get no benefit. Many used-car buyers—often those most hurt by high interest rates—are also ineligible.
– Policy impact: Because it’s limited in scope, relatively modest in value, and doesn’t affect vehicle production rules, the deduction is unlikely to be a major lever for shifting automakers’ manufacturing decisions. It should, however, provide a modest tax relief to qualifying new-car buyers without reducing benefits for others.
Bottom line
If you bought a new car assembled in the U.S. and took out an auto loan in 2025, check your loan statements and your MAGI to see whether you can claim up to $10,000 of deductible interest when you file. The benefit is modest but can help lower taxable income even if you take the standard deduction.