The new tax legislation signed on July 4, 2025, introduces a temporary federal income tax deduction for interest paid on auto loans for new vehicles purchased between January 1, 2025, and December 31, 2028.
What Qualifies?
Eligible vehicles include cars, minivans, SUVs, pickup trucks, and motorcycles. To qualify, the vehicle must:
- Be new and used for personal purposes
- Have at least two wheels
- Weigh less than 14,000 pounds
- Have had final assembly in the United States
How Much Can You Deduct?
You can deduct up to $10,000 per year in interest paid on your auto loan. The deduction begins to phase out for:
- Single filers with taxable income over $100,000
- Joint filers with taxable income over $200,000
You don’t need to itemize to claim this deduction.
Example
In 2025, John is single, has taxable income of $60,000, and buys a new automobile for personal use. He pays $2,500 in interest on his auto loan that year. When he files his 2025 taxes in early 2026, he can deduct $2,500 from his taxable income. John also takes the standard deduction of $15,750. So his taxable income is reduced to $41,750. This puts him in the 12% marginal tax bracket. So the auto loan tax deduction will reduce his 2025 tax liability by approximately $300. John’s estimated 2025 tax liability with the tax deduction will be $4,772.
Looking Ahead
This deduction is temporary—it expires after December 31, 2028.
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