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Understanding the New Car Loan Interest Deduction

A key part of the "One Big Beautiful Bill Act" is a brand new deduction for 2025 designed to benefit car buyers and the auto industry.

What is this new deduction?

For tax years 2025 through 2028, you can deduct the interest you pay on a car loan, up to a maximum of $10,000 per year. This is an "above-the-line" deduction, which means you can take it even if you don't itemize.

What are the requirements to qualify?

The rules are specific. To claim the deduction, all of the following must be true:

• The vehicle must be new (not used).
• The vehicle's final assembly must be in the United States.
• The car loan must have originated after December 31, 2024.

How do the income limits work?

This deduction is for low- and middle-income taxpayers. The amount you can deduct is reduced if your Modified Adjusted Gross Income (MAGI) is too high.

• For Single / Head of Household Filers: The deduction phases out between $100,000 and $200,000 of MAGI.
• For Married Filing Jointly: The deduction phases out between $200,000 and $400,000 of MAGI.

Our calculator handles these phase-out calculations automatically when you enter your income.