If you recently financed a vehicle, you may be in luck when it comes to tax season for the year 2025. Thanks to the One Big Beautiful Bill Act (OBBB) signed by President Trump on July 4, 2025, some car loan interest is now tax-deductible in certain situations.
The OBBB allows you to deduct up to $10,000 of car loan interest from your federal taxes between the years 2025 and 2028. This deduction is available for personal use vehicles such as cars, minivans, vans, SUVs, trucks, and motorcycles that weigh less than 14,000 pounds. In order to qualify for this deduction, you must have taken out the loan after December 31, 2024, and purchased the vehicle new. Additionally, the vehicle’s final assembly location must be in the U.S.
To be eligible for the full deduction, your taxable income cannot exceed $100,000 if you are single or $200,000 if you are married filing jointly. The deduction begins to phase out if your income exceeds these thresholds and is completely eliminated if your income is above $150,000 for single filers or $250,000 for joint filers.
If you meet the criteria for the car loan interest deduction, you can deduct the amount of interest paid on your loan from your taxable income. This deduction is reported on Schedule 1-A, a new IRS form used for above-the-line deductions. You will also need to include your car’s VIN on this form when you file your taxes.
While the car loan interest deduction may not have a major impact on your overall tax situation, it’s still worth taking advantage of if you qualify. By gathering the necessary information and following the steps outlined above, you can potentially lower your tax bill or increase your tax refund.
In conclusion, the new tax break for car loan interest under the OBBB provides an opportunity for eligible individuals to save money on their taxes. If you recently purchased a new vehicle and meet the requirements for the deduction, be sure to take advantage of this opportunity when filing your tax return for the year 2025.
