September 10, 2025
If you’ve been hearing the buzz about the One Big Beautiful Bill Act (OBBB), you know it’s jam-packed with tax changes. One of the more surprising additions? A brand-new, temporary deduction for personal car loan interest. It sounds simple, but like anything in the tax code, there are a few big catches. Let’s break it down in plain English so you don’t confuse this with business vehicle write-offs or think it applies to a prior purchase.
What the Deduction Actually Does
For tax years 2025 through 2028, you may deduct up to $10,000 per year in interest paid on a qualifying car loan. This deduction is available for both itemizers and non-itemizers.
But before you start celebrating, here are the fine-print requirements:
- The loan must be for a new vehicle: no used cars, no leases, no salvage titles.
- The car must undergo final assembly in the U.S. and you’ll need to provide the VIN on your tax return.
- The loan must be originated after December 31, 2024 and before January 1, 2029, and secured by a first lien on the vehicle.
- Refinanced loans can still qualify, but only if the original loan met all the rules.
- If married, the deduction is only available if the couple files a joint return.
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And perhaps most importantly: the vehicle must be for personal use only. Business vehicles may still deduct interest as a business expense under normal IRS rules. Just not under this temporary OBBB carve-out.
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The Income Phase-Out
This deduction is designed for middle-income taxpayers, not high-income taxpayers. If your modified adjusted gross income (MAGI) is over $100,000 ($200,000 for joint filers), the deduction starts shrinking. It drops by $200 for every $1,000 of income over the limit. So, the higher above the threshold you are, the less benefit you’ll see until it disappears entirely.
How Lenders Fit into This
Just like with mortgage interest, your lender has some reporting duties. They’ll need to send you a statement showing how much interest you paid and report that amount to the IRS. Think of it as a “Form 1098 for car loans.”
The OBBB car loan interest deduction is short-lived, tightly restricted, and easy to misunderstand. It’s meant for personal-use buyers of new, U.S.-assembled cars between 2025 and 2028. If you’re above the income limits, use your vehicle for business, or finance a used or leased car, you won’t see any benefit.
While this provision could save some taxpayers taxes over the next few years, it’s not the free-for-all “car loan write-off” some headlines are making it out to be. As always, the key is knowing whether you qualify before you try to claim it.