Starting in 2025, you may be able to deduct the interest you pay on a car loan—even if it’s for personal use. That’s right: the same way mortgage interest can reduce your taxes, interest on your personally owned vehicle might now help you save on your tax bill, thanks to a new rule in effect through 2028.
Here’s how it works:
If you take out a car loan after December 31, 2024, and the car meets a few requirements, you may deduct up to $10,000 per year in interest. It applies whether you itemize or not, and you’ll just need to include the Vehicle Identification Number (VIN) on your return.
But not all car loans will qualify.
Here’s the checklist:
- The car must be brand new (no used vehicles).
- Final assembly must have taken place in the United States.
- The vehicle must be for personal use, not business.
- The loan must be secured by the vehicle itself.
If you later refinance, the interest on the new loan is generally still eligible.
Who qualifies?
This benefit is phased out for high earners. If your modified adjusted gross income is over $100,000 ($200,000 if married filing jointly), you won’t qualify. But for many working professionals, solo business owners, and young families, this is a meaningful way to reduce taxable income.
What counts as a “qualified vehicle”?
Any new car, SUV, pickup, van, minivan, or even motorcycle under 14,000 pounds—so long as it was built here in the U.S. Check the dealer window sticker or run your VIN through the NHTSA VIN Decoder to confirm. https://www.nhtsa.gov/vin-decoder
Heads-up for lenders:
The IRS will require lenders to report how much interest you paid each year, similar to how mortgage interest is reported now. There will be some transition relief in 2025, but full compliance is expected moving forward.
Why this matters:
With interest rates still hovering higher than we’d all like, even a modest deduction on a car loan could help ease the burden—and give you more breathing room in your budget.
If you’re planning to buy a new car in 2025, keep this deduction in mind. And if you’d like help running the numbers to see what this could save you, just reach out. We’re here to help.