Car Loan Interest Deduction Now Available
As promised by President Trump to bring auto manufacturing back to America, Public Law 119-21 signed into law on July 4, 2025 in the One Big Beautiful Bill Act, it includes a new car loan interest deduction that goes off income tax for certain taxpayers who purchase a qualifying American made/built vehicle. This program incentivizes shoppers to consider and buy Made In America vehicles. This is not a dealership nor a Chevrolet program, but a federal offer to reduce your tax with vehicle loan interest payments deduction. This program aims to increase US made and manufactured vehicles on American soil. Below you’ll find brief details of what the federal program, Car Loan Interest Deduction is all about.
What are Car Loan Interest Tax Deductions:
A tax deduction reduces the overall taxable income depending on your gross income tax bracket allowed for deduction. Simply put, tax deductions reduce taxes you have to pay. What’s key in Public Law 119-21, part of the “One Big Beautiful Bill Act” is that it allows for car loan interests to be deducted. For clarity, tax deductions are unlike a tax-credit which is a dollar-for-dollar reduction of your tax bill. In the past, if you wanted a low APR for a car purchase, we’ll wait for special offers from Chevrolet and other car makers. Now it is possible for qualified new vehicle loan interest payments from any bank, depending on your income bracket to be reduced off your total income. Either Tax Deduction or Tax Credit, it is a reduction in taxes tax filers have to pay. Please check with your Tax Preparer as personal situations may be different.
Which Vehicle Qualifies?
• NEW car, minivan, van, SUV, pick-up truck, or motorcycle with a GVW rating less than 14,000 pounds.
• Neither a used vehicle nor a leased vehicle is eligible for this interest loan deduction.
• Vehicle must be for personal use.
• No business or commercial use vehicle is eligible.
• Final assembly of the vehicle must be in the United States. To determine a vehicle’s final assembly, check the (1.) Monroney label; (2.) VIN; (3.) National Highway Traffic Safety Administration (NHTSA) VIN Decoder (HERE).
• A purchase must be on a vehicle originally used by the taxpayer.
Deduction Details:
• Maximum annual deduction is $10,000.
• The deduction phases out for a taxpayer with modified adjusted gross income (MAGI) over $100,000 ($200,000 for joint filers). For every $1,000 above those thresholds, the deduction is reduced by $200 and eventually phases out entirely.
• The deduction is available for both itemizing and non-itemizing taxpayers.
• The VIN is to be included on the tax return for any year when the deduction is claimed.
• Interest must be paid on a loan that is originated after December 31, 2024.
• The deduction is effective for 2025 through 2028, unless Congress extends the deduction.
• The vehicle must be secured by a lien.
• If a qualifying vehicle is later refinanced, the interest paid on the refinanced amount may be eligible for the deduction.
• A lender must file information returns with the IRS and furnish a statement to the taxpayer that shows the total amount of interest received during the taxable year.
• The IRS is expected to provide transition relief for tax year 2025 for interest recipients subject to the new reporting requirements.
