Can You Deduct Car Loan Interest on 2025 Taxes?

A new car loan interest deduction is hitting the road in tax year 2025, and it could mean extra tax savings for tons of car buyers. Part of the Working Families Tax Cuts (also known as the One Big Beautiful Bill), this temporary tax break lets you deduct interest paid on certain new vehicle loans. You just have to meet specific eligibility rules to claim it.

Let’s walk through how the car interest deduction works, who qualifies, and how to claim this new tax benefit when you file your tax return with TaxAct®.

What is the car loan interest tax deduction?

The new car loan interest tax deduction (also sometimes called no tax on car loan interest) lets taxpayers deduct up to $10,000 per taxable year for interest paid on a qualifying vehicle loan. This is considered an above-the-line deduction, meaning you can claim it even if you take the standard deduction — you don’t have to itemize.

Keep in mind that you can only deduct interest payments (up to $10,000 per year) on qualifying vehicle loans. Only the interest portion of your car payment is deductible (not the loan principal). This tax deduction for vehicle loans is also temporary and currently applies only to tax years 2025 through 2028.

Who qualifies for the car loan interest deduction 2025?

To be eligible to claim this tax break, you, your vehicle loan, and your car must meet specific requirements, which we’ve broken out for you below.

Your loan must:

Be taken out after Dec. 31, 2024.

Be secured by a lien on the vehicle — in other words, your lender must have a legal interest in the car until it’s paid off.

Be explicitly used to purchase a qualified passenger vehicle (not to refinance an existing loan).

Include a valid vehicle identification number (VIN).

Be issued by a legitimate lender or dealership.

Include interest payments made during the tax year.

Your vehicle must:

Be manufactured mainly for use on public roads.

Have at least two wheels.

Be a car, minivan, SUV, pickup truck, van, motorcycle, or all-terrain vehicle (ATV).

Be assembled in the United States.

Have a gross vehicle weight rating (GVWR) under 14,000 pounds.

Be brand new (“new to you” used vehicles don’t qualify).

Note: Loans for campers and RVs do not qualify for the auto loan tax deduction under the final tax law, even if you use them as your primary residence.

You must:

Be the original owner (the “original use” of the vehicle must start with you, meaning used cars don’t qualify).

Use the vehicle primarily for personal use (not business use).

Report the VIN on your tax return when claiming the deduction.

Meet the income requirements (see next section).

What are the income limits for the car loan interest tax deduction?

The car loan interest tax deduction begins to phase out once your modified adjusted gross income (MAGI) exceeds:

$100,000 for single filers

$200,000 for joint filers (like a married couple filing jointly)

If your income falls below these income limits, you can claim the full deduction. Otherwise, your deduction amount gets reduced by $200 for every $1,000 you earn above the MAGI threshold.

For example, if your income is $105,000 as a single filer, your maximum deduction would be reduced by $1,000 ($200 x 5). In this case, your maximum deduction would be $9,000 instead of $10,000.

What vehicles qualify for the car loan interest deduction?

You can claim the car interest deduction for most new vehicles that meet the above criteria.

The main thing is that the vehicle must be a qualified passenger vehicle, meaning it’s designed primarily for road use and not for commercial or recreational purposes.

Vehicles that typically qualify include:

Sedans and new cars purchased through a dealership

Minivans and SUVs used for personal use

Pickup trucks and vans

Motorcycles and ATVs

Vehicles that don’t qualify include:

RVs, campers, and other large vehicles with a GVWR of 14,000 or more

Vehicles without a valid VIN

Any vehicle not assembled in the U.S.

Used or pre-owned vehicles

How to claim the car loan interest deduction on taxes

When you file your 2025 tax return, you’ll need to report the amount of interest you paid on your qualified vehicle loan. TaxAct will ask you for this information if you file with us.

How will my lender report car loan interest for the 2025 tax year?

The IRS recently released guidance on how lenders will report qualified passenger vehicle loans under the new qualified vehicle deduction rules. Because this deduction is new, 2025 serves as a transition year for businesses and dealerships issuing vehicle loans.

If you financed a new vehicle in 2025, your lender should provide you with the amount of interest you paid during the year. For 2025 only, lenders can meet their reporting requirements by giving you this information in any of the following ways:

Through an online portal that you can easily access

On a monthly or annual statement

By other similar means that clearly show your interest payments

Be on the lookout for emails or letters from your lender reporting your interest payments this tax season. This information will help you (and TaxAct) report the correct amount of interest on your tax return when claiming the auto loan interest deduction.

Claiming the deduction with TaxAct

If you file with TaxAct, the process will be straightforward. You’ll simply enter details from your vehicle loan when prompted by our tax software, including the amount of interest you paid during the year and your VIN. TaxAct will then help you determine your car loan interest tax deduction automatically using a new form called Schedule 1A.

Keep in mind:

You can claim this deduction even if you take the standard deduction — you do not have to itemize.

If you use your vehicle for business use, you can’t claim this particular deduction. However, self-employed filers can still write off their car under existing business expense rules.

FAQs about the car loan interest deduction

Can you deduct car loan interest in 2025?

Yes. Beginning with the 2025 tax year, you can deduct up to $10,000 of interest paid per year on a qualifying vehicle loan, as long as you meet all eligibility requirements.

Which vehicles are eligible for the car interest deduction?

Qualified passenger vehicles like new cars, SUVs, minivans, pickup trucks, motorcycles, and ATVs qualify if they’re assembled in the U.S. and have a valid VIN.

Campers and RVs do not qualify under the final tax law. Loans on pre-owned and used cars also do not qualify for this deduction — the vehicle must be new.

How do I know if my vehicle was assembled in the U.S.?

You can check your vehicle’s final assembly location using a tool like the National Highway Traffic Safety Administration (NHTSA) VIN Decoder. Just enter your VIN, and the tool should identify where your car was built and other manufacturing details.

The IRS and lenders are also expected to provide more official guidance on which vehicle models qualify under this new tax law in the near future.

You can usually find your VIN:

• On your loan paperwork or title• On your vehicle registration• Inside your car (typically on the driver’s side, either on the dashboard or on a sticker inside the door frame)

Does this work with the EV tax credit?

Absolutely. The vehicle loan interest tax deduction can stack with the EV tax credit, as long as you meet the specific requirements for both tax breaks. Each tax credit or deduction applies separately to your federal tax situation.

Note: The Working Families Tax Cuts eliminated the EV tax credit for qualifying vehicles delivered after Sept. 30, 2025. You must have purchased and taken delivery of your qualifying vehicle on or before that date to claim the EV credit for tax year 2025.

How does the car loan interest deduction work for business vehicles?

If you use your vehicle for business use and already deduct auto expenses as a self-employed taxpayer, you generally won’t claim this new deduction for the same interest payments. However, if you bought a vehicle this year solely for personal use (maybe you drive a separate one for business purposes), the car interest deduction can still apply.

If you’re unsure, it never hurts to consult a tax professional! And if you file with us at TaxAct, you can also consult credentialed tax experts and get answers to your tax questions using Xpert Assist®.*

What doesn’t qualify for the car loan interest tax write-off?

You cannot claim the deduction if:

• The vehicle is used or previously owned.• The vehicle is leased. Lease payments aren’t considered loan interest, since you don’t actually own the car.• The vehicle is a camper, RV, or any other vehicle not primarily designed for use on public roads.• The vehicle has a GVWR of 14,000 pounds or more.• The vehicle was not assembled in the United States.• The loan is unsecured (not tied to the vehicle by a lien).• The VIN isn’t listed on your vehicle loan or tax return.

The bottom line

The new car loan interest deduction is one of several tax changes introduced in the Working Families Tax Cuts, and it’s designed to help borrowers offset the high interest rates and rising cost of new vehicles. If you financed your new car through a dealership or another lender, this new deduction could help you cut down your income tax bill and enjoy some well-deserved tax savings.

When you’re ready to file, TaxAct can help guide you through claiming the auto loan interest deduction, along with any other tax benefits you qualify for.

This article is for informational purposes only and not legal or financial advice.

Car loan interest deduction not available with all TaxAct Online products.

All TaxAct offers, products and services are subject to applicable terms and conditions.

* Tax Experts are available with TaxAct® Xpert Assist®, which encompasses a suite of services designed to provide varying levels of support and assistance for your tax filing needs. These services are available at an additional cost and are subject to limitations and restrictions. Service availability, features, and pricing may vary and are subject to change without notice. For more details, read full terms.

The OBBB is now also being referred to by lawmakers as the Working Families Tax Cut Act. You may see one or both names used in this article, but they refer to the same set of tax changes.

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