The deduction for interest on a new car loan, 2025 through 2028

How it works

The tax law signed July 4, 2025 (Public Law 119-21) created this deduction for tax years 2025 through 2028. The loan has to be taken out after December 31, 2024, to buy the vehicle, and secured by a lien on it. The vehicle has to be new, with its first use starting with the buyer, fall under the weight rating the law sets, have had its final assembly in the United States, and be for personal use, not business use. A lease does not count, and neither does a used vehicle. The deduction is capped at this year's official car loan interest cap (not yet verified here; see the official source below) a year, and it shrinks as modified adjusted gross income rises above this year's official car loan phaseout single start (not yet verified here; see the official source below) for a single filer or this year's official car loan phaseout married start (not yet verified here; see the official source below) on a joint return. It is taken whether the filer itemizes or takes the standard deduction, and the vehicle identification number goes on the return for each year it is claimed. The plant of final assembly appears on the window sticker at the dealer.

What it gives

It is taken whether the filer itemizes or takes the standard deduction, unlike most interest on personal loans.

Interest is largest in a loan's early years, and for a loan taken out in 2025 or 2026 those years fall inside the years the deduction lasts.

What it costs, or where the catch is

Used vehicles, leases, and vehicles assembled outside the United States do not qualify.

A deduction returns only the tax rate times the interest, so $1,000 of interest at a 12 percent rate saves $120 and the other $880 is still a cost.

It ends after the 2028 tax year, while the loan may run longer.

A worked example

Tomas buys a new pickup assembled in the United States with a $40,000 loan at 7 percent over five years, and in his first full year of payments he pays about $2,600 of interest. He files single, his income is below the line where the deduction shrinks, and if the cap were $10,000 the whole $2,600 would come off his taxable income. At a 22 percent rate that saves $2,600 times 0.22, about $570 of federal income tax. The pickup still costs him the other $2,030 of interest that year.

Where it goes wrong

The common miss is claiming interest on a used car, a lease, or a car assembled abroad, or leaving the vehicle identification number off the return.

Who confirms it for you

For your own numbers, a CPA or enrolled agent. This page explains how the rule works for people in general; it does not know your situation and does not tell you what to do.

The official source

IRS: Purchasing a new vehicle? Car loan interest could be eligible for a tax deduction. Every figure that changes by year in How it works comes from the site's rules table, which the watcher checks against the official page on a schedule; where a figure is not yet verified, this page says so instead of printing a number. Each worked example uses the figures of the year it names, or says its figures are only supposed.