Beginning in tax year 2025 and expiring December 31, 2028, you can deduct up to $10,000 of auto loan interest per year, subject to income phaseouts and other limitations. Before the One Big Beautiful Bill Act (OBBBA) was passed, interest on loans to purchase vehicles for personal use could not be deducted.
Phaseouts
- The maximum annual deduction is $10,000.
- The deduction phases out at $100,000 modified adjusted gross income for single filers and $200,000 modified adjusted gross income for joint filers.
- The loan must originate after December 31, 2024.
Vehicle Limitations
- The vehicle must be purchased new—you must be the first one to use to vehicle. Used vehicles are not eligible.
- The vehicle must be for personal use, not business or commercial use.
- The interest must be paid on a loan that is secured by a lien on the vehicle.
- The vehicle must be a car, minivan, SUV, pickup truck or motorcycle with a gross vehicle weight rating under 14,000 pounds.
- Final assembly of the vehicle must occur in the United States.
- The location of final assembly will be listed on the vehicle information label.
- Alternatively, taxpayers can follow instructions on the NHTSA “VIN Decoder” website to determine the location of manufacture.
- You must report the Vehicle Identification Number (VIN) on your tax return.
Under this new provision, lenders are required to file information returns with the IRS to report interest received on qualified personal auto loans. This is an above-the-line deduction, meaning the deduction can apply to all taxpayers, including those who do not itemize deductions.
Contact your RKL advisor today to understand if you are eligible for this new deduction.
