Your Car Loan Just Got More Tax-Friendly: How the “One Big Beautiful Bill” Helps You Save

Starting in 2025, the newly enacted One Big Beautiful Bill Act (or OBBBA) introduces a special above‑the‑line tax deduction for car loan interest—an incentive long overdue. Now, both filers who itemize and those claiming the standard deduction can potentially lower their taxable income by writing off up to $10,000 of auto loan interest per year on qualifying vehicles.

What Makes an Auto Loan Interest “Deductible”?

To qualify, your vehicle and loan must meet all the following:

• New vehicle purchased—not used

• Personal use only (no business, leasing, or fleet use)

• Final assembly must be in the U.S. (check the vehicle label or VIN)

• Loan originated after December 31, 2024 and secured by a lien on the vehicle

• You must report the VIN and interest data on your tax return; lenders are required to send IRS and borrower reporting if interest is over $600

There’s a phase‑out based on income: single filers see a reduction of $200 for every $1,000 over $100,000, phasing out fully by ~$150,000. Joint filers begin losing the deduction over $200,000, with full phase‑out by ~$250,000.

When Does It Start—and How Long Will It Last?

• Effective date: Auto loans used to purchase qualifying vehicles in tax year 2025 and onward are eligible—so your 2025 tax return (filed in 2026) can claim the deduction.

• Expiration: The provision is temporary, ending after 2028 unless Congress extends it.

Why It Matters

• Immediate visibility: As an above-the-line deduction, it lowers your Adjusted Gross Income (AGI), improving tax liability even if you’re not itemizing—potentially cutting your state income taxes, too.

• However, most buyers won’t hit the $10,000 cap. With average new-car loans around $44,000, typical tax savings are estimated closer to $500 per year, unless loan amounts are exceptionally large.

  
  

Final Take

If you’re planning to finance a new, U.S.-assembled vehicle in the coming years, this deduction offers a welcome tax break—especially if your loan interest is substantial. Claim it starting with your 2025 return, and keep in mind it’s a temporary benefit through 2028. Be sure to check income limits and include the VIN and lender’s interest info when filing.