The One Big Beautiful Bill (OBBB) brought sweeping tax changes for 2025–2028, and one provision is catching a lot of attention: auto loan interest is now deductible. That’s right — taxpayers may now deduct up to $10,000 per year in interest paid on qualifying auto loans.
This new break is an above-the-line deduction, which means it reduces taxable income whether or not you itemize. Even better, auto lenders will issue a Form 1098 (Auto Loan Interest Statement) starting in 2025, so reporting the deduction will be straightforward.
What Qualifies?
Not every car or loan makes the cut. To claim the deduction, your purchase must meet these requirements:
- New vehicle only — used cars don’t qualify.
- Final assembly in the U.S. — it’s not enough to be a U.S. brand; the car must be assembled here.
- Personally owned — no fleet cars (covered by business rules), no leases (since you don’t own the vehicle), and no salvage-title vehicles.
- Loan originated after December 31, 2024 — refinances qualify if the original loan was eligible.
Income Limits
The deduction phases out at higher income levels:
- Single filers: full deduction up to $100,000 MAGI, phased out by $150,000.
- Joint filers: full deduction up to $200,000 MAGI, phased out by $250,000.
What About Mixed Business and Personal Use?
Here’s a key distinction: OBBB’s auto loan interest deduction applies only to personal-use vehicles.
If you use a vehicle for business purposes, you can still deduct the business-use portion of interest under existing IRS rules (Pub. 463). But you cannot also claim the personal portion under OBBB. In other words, no double-dipping.
Example: If 80% of your car use is for business and 20% personal, you can deduct 80% of the interest as a business expense — but the 20% personal portion does not qualify for OBBB.
Real-World Savings
The deduction cap is $10,000 per year, but most taxpayers won’t reach that amount.
- A typical new car loan of $44,000 at 9.3% interest generates about $2,200 in total annual interest, which could translate to hundreds in savings each year.
- Because it lowers AGI, the deduction may also reduce state income tax in certain states.
Why It Matters
The OBBB auto loan interest deduction is a consumer-focused benefit, not a business incentive. It gives everyday taxpayers a modest but meaningful tax break while nudging demand toward new, U.S.-assembled vehicles.
It’s not going to make anyone rich, but it’s one more lever for tax planning between now and 2028.
Key Takeaway: If you buy a new, U.S.-assembled car in 2025 or later and finance it, you may be able to deduct the interest — but only if it’s a personal-use vehicle. Business owners already have existing rules to deduct the business-use portion of auto loan interest.
