New Car Loan Interest Deduction: A Possible Tax Break (With Some Big Fine Print)

If you’re thinking about buying a new vehicle sometime soon, I have a tax update you’ll want to know about.

The IRS has released proposed rules for a brand-new (temporary) deduction that could let some taxpayers deduct up to $10,000 of interest paid on certain auto loans.

Now… before anyone runs out and buys a shiny new SUV “for the write-off,” let’s talk about what this actually means — and who this really helps.

Because as always in tax world: the headline sounds simple, but the details matter.

So What’s the New Deduction?

This new rule allows some taxpayers to deduct interest paid on a loan for a new, U.S.-assembled passenger vehicle through 2028.

One interesting twist:You can claim this deduction even if you take the standard deduction.

That’s a big deal, because normally personal car loan interest is not deductible at all.

So for many working families who don’t itemize, this could be a nice bonus.

One important catch:The $10,000 limit is per tax return, not per person.

So married couples filing jointly do not get $20,000 — they get $10,000 total.

(Yes, I know… cue the disappointed face.)

The Car Needs to Be Mostly for Personal Use

To qualify, the vehicle must be expected to be used more than 50% for personal driving when you take out the loan.

The good news? This is a one-time determination based on intent — you don’t have to track mileage year after year.

And “personal use” includes use by close family members too.

So if you finance a vehicle mainly for your teenager or college student, that still counts as personal use.

Congress was clearly aiming this at helping working and growing families.

It Has to Be New and Assembled in the U.S.

Not every vehicle qualifies.

To be eligible, it must be:

• Brand new (you’re the first owner)

• A passenger vehicle like a car, SUV, or pickup under 14,000 lbs

• Finally assembled in the United States

You can check this pretty easily using:

• The VIN lookup tool online

• The vehicle’s assembly label inside the door frame

(And yes — this is something to confirm before signing paperwork.)

What Part of the Loan Counts?

This deduction can apply to more than just the car’s price.

Loans often include things like:

• Sales tax

• Dealer fees

• Extended warranties or service plans

Those can count.

But here’s an important planning point:

If you roll negative equity from a trade-in into the new loan, that portion does not qualify.

So the way the deal is structured matters.

The Income Limits Are… Honestly Pretty Strict

This deduction phases out quickly once income rises.

It begins phasing out at:

• $100,000 for single filers

• $200,000 for married filing jointly

And it disappears completely at:

• $150,000 single

• $250,000 joint

So higher-income households may not benefit at all.

This is one of those deductions that sounds widely available… but in reality, it has a pretty narrow sweet spot.

Business Owners: This Probably Isn’t Your Best Option

If you’re self-employed or use your vehicle for business, listen closely:

In most cases, deducting vehicle interest as a business expense is still the better tax strategy.

Why?

Because business deductions can:

• Lower your taxable income

• Reduce self-employment tax

• Help preserve other tax benefits tied to AGI

So even though this new deduction exists, most business owners will still come out ahead using traditional business treatment.

(And we always want the best overall result — not just the newest deduction.)

Who Is This Deduction Really For?

This is most helpful for:

✅ Moderate-income W-2 employees

✅ People under the phaseout limits

✅ Buyers of new, U.S.-assembled vehicles

✅ Standard deduction filers who otherwise get no auto interest benefit

This is not helpful for:

• High earners above the income thresholds

• Used vehicle purchases

• Foreign-assembled vehicles

• Business owners who should deduct through their business instead

• 
  

My Takeaway

This is a helpful, temporary tax break — but it’s definitely not a universal “everyone gets $10,000” situation.

If you’re planning a vehicle purchase soon, it’s worth slowing down and asking:

Will this deduction actually apply to me?And if you’re a business owner, is there a better way to handle it?

That’s exactly the kind of planning we love doing at Casler Financial.

If you want help running the numbers before you buy, reach out anytime — we’ll make sure you’re making the most tax-smart decision for your situation.