New: Auto Loan Interest Deduction

On July 4th, President Trump signed a major new tax law: the One Big Beautiful Bill Act (OBBBA). This new legislation builds upon the 2017 Tax Cuts and Jobs Act (TCJA) and brings several changes to the tax code. One of those provisions relates to auto loans.

Auto Loan Interest Deduction

For tax years 2025-2028, a new temporary tax break allows individuals to deduct up to $10,000 in interest paid on loans for qualifying personal vehicles.

Key Limits

• Annual cap: Up to $10,000 of interest can be deducted per year.

• Income phase-out: Deductions shrink once modified adjusted gross income (MAGI) exceeds $100,000 for single filers ($200,000 for joint). The deduction is reduced by $200 for every $1,000 (or part thereof) above the threshold.

• Not eligible: Loans for fleet sales, commercial vehicles, leased vehicles, salvage-title or scrap vehicles, and loans from related parties.

What Counts as a “Qualified Vehicle”?

To qualify, the vehicle must:

• Be for the taxpayer’s original use,

• Be primarily designed for use on public roads,

• Weigh less than 14,000 pounds (GVWR),

• Be assembled in the United States,

• And meet the Clean Air Act definition of a motor vehicle.

Eligible vehicles include cars, SUVs, minivans, pickup trucks, vans, and motorcycles with at least two wheels.

Other requirements

The loan must be secured by a first lien on the vehicle, and the taxpayer must include the VIN on their return. Refinanced loans also qualify, but only up to the original principal amount.

Available to itemizers and non-itemizers

Unlike many deductions, this one is available to both itemizers and non-itemizers. Taxpayers who take the standard deduction may still claim it as an above-the-line adjustment to income under §63(b)(7).

Effective Dates

The Auto Loan Interest Deduction applies to tax years 2025 through 2028.