At a Glance
Beginning in tax year 2025, eligible taxpayers may deduct up to $10,000 of interest paid annually on qualifying personal auto loans. The deduction is available whether or not the taxpayer itemizes deductions, but income limits and vehicle requirements apply. The provision is scheduled to expire after December 31, 2028.
Key Takeaways
- Eligible taxpayers may deduct up to $10,000 of qualifying personal auto loan interest each year.
- The deduction begins in tax year 2025 and expires December 31, 2028.
- The deduction begins to phase out at modified adjusted gross income of $100,000 for single filers and $200,000 for joint filers.
- The vehicle must be new, for personal use, and have final assembly in the United States.
- The loan must originate after December 31, 2024, and be secured by a lien on the qualifying vehicle.
Who Is Affected
This deduction may affect individuals who finance the purchase of a new vehicle for personal use through a qualifying auto loan.
It does not apply to vehicles purchased for business or commercial use, or to used vehicles.
Eligibility and Key Requirements
Eligibility Requirements
To qualify for the deduction:
- The taxpayer must purchase a new vehicle and be the first person to use it.
- The vehicle must be for personal use, not business or commercial use.
- The loan must originate after December 31, 2024.
- The interest must be paid on a loan secured by a lien on the vehicle.
- Final assembly of the vehicle must occur in the United States.
- The taxpayer must report the vehicle identification number (VIN) on the tax return.
Eligible vehicles include cars, minivans, SUVs, pickup trucks, and motorcycles with a gross vehicle weight rating of less than 14,000 pounds.
Limits, Thresholds, and Phaseouts
The maximum annual deduction is $10,000 of qualifying auto loan interest.
The deduction begins to phase out at the following modified adjusted gross income levels:
- Single filers: $100,000
- Joint filers: $200,000
Exclusions and Special Rules
The deduction is not available for:
- Used vehicles;
- Vehicles used for business or commercial purposes;
- Vehicles that do not have final assembly in the United States;
- Vehicles with a gross vehicle weight rating of 14,000 pounds or more; or
- Interest paid on a loan that is not secured by a lien on the vehicle.
Taxpayers can verify the location of final assembly using the vehicle information label. Alternatively, taxpayers may follow the instructions on the National Highway Traffic Safety Administration’s VIN Decoder website to determine the location of manufacture.
Documentation and Reporting
Taxpayers must report the VIN of the qualifying vehicle on their tax return.
Lenders are required to file information returns with the IRS reporting interest received on qualified personal auto loans. Taxpayers should retain records related to the vehicle purchase, loan origination date, vehicle use, loan interest paid, and final-assembly location.
Effective Dates
The deduction is available beginning with tax year 2025.
The loan must originate after December 31, 2024.
The deduction expires after December 31, 2028.
Planning Considerations
Individuals considering the purchase and financing of a new personal vehicle should evaluate eligibility before completing the purchase. This includes confirming that the vehicle is new, will be used for personal purposes, meets the weight limitation, and has final assembly in the United States.
Taxpayers should also consider the loan’s origination date and confirm that the financing is secured by a lien on the vehicle. Because the deduction is subject to income phaseouts, taxpayers near the applicable modified adjusted gross income thresholds may want to evaluate how the phaseout could affect the available benefit.
As an above-the-line deduction, this provision may be available to taxpayers who do not itemize deductions.
Example
A taxpayer purchases a new SUV for personal use in tax year 2025. The vehicle has a gross vehicle weight rating below 14,000 pounds, final assembly occurred in the United States, and the taxpayer finances the purchase through a loan originating after December 31, 2024. The loan is secured by a lien on the SUV.
If the taxpayer meets the applicable income requirements, the interest paid on the loan may qualify for the personal auto loan interest deduction, subject to the $10,000 annual limit.
In contrast, interest on a loan used to purchase a used vehicle or a vehicle used for business purposes would not qualify.
Next Steps
- Confirm that a planned vehicle purchase meets the new-vehicle, personal-use, weight, and final-assembly requirements.
- Review financing terms to ensure the loan originates after December 31, 2024, and is secured by a lien on the vehicle.
- Consider the potential effect of the modified adjusted gross income phaseout on the available deduction.
- Retain the VIN and records supporting the vehicle purchase, loan, interest payments, and final-assembly location.
For additional information and tax-planning strategies, contact your RKL advisor.
Frequently Asked Questions
Who qualifies?
Taxpayers who purchase and finance a qualifying new vehicle for personal use may qualify. The loan must originate after December 31, 2024, be secured by a lien on the vehicle, and meet the other applicable requirements.
What is the maximum deduction?
The maximum annual deduction is $10,000 of qualifying auto loan interest.
When does the deduction apply?
The deduction begins in tax year 2025 and expires after December 31, 2028. The loan must originate after December 31, 2024.
Do I need to itemize deductions?
No. This is an above-the-line deduction, meaning it may be available to taxpayers who do not itemize deductions.
What records or reporting are required?
Taxpayers must report the vehicle’s VIN on their tax return. Taxpayers should retain records supporting the vehicle purchase, personal use, loan terms, interest paid, and final-assembly location.
What vehicles do not qualify?
Used vehicles, business or commercial vehicles, vehicles with a gross vehicle weight rating of 14,000 pounds or more, and vehicles not finally assembled in the United States do not qualify.
