Auto Loan Interest Tax Deduction: What You Need to Know

Buying a new car can be expensive, but there’s some good news for future buyers. Starting in 2025 and through 2028, you may be able to deduct up to $10,000 a year in interest paid on certain new car loans when filing your federal taxes.

This new tax rule is meant to encourage people to buy cars made in the United States.
 

How Does the Deduction Work?

 

• Amount you can deduct: Up to $10,000 a year in interest paid on an eligible auto loan.
• Loan dates: The loan must be started between 2025 and 2028.
• No need to itemize: You do not need to itemize your deductions; most people who use the standard deduction will also benefit.

 

Who Qualifies?

 

• Personal use only: The vehicle must be bought for personal use—not for business.
• Income limits:
  • For single filers: The deduction starts shrinking if you make more than $100,000 a year, and is completely gone if you make $150,000 or more.
  • For married couples filing jointly: The deduction starts shrinking at $200,000 and is phased out above $250,000.
  • It’s reduced by $200 for every $1,000 above the income limit.

 

What Vehicles Qualify?

 

• New vehicles only: Used cars are not eligible.
• Type: Cars, minivans, SUVs, pickup trucks, and motorcycles designed mainly for public roads.
• Weight: The vehicle must have a gross weight under 14,000 pounds.
• Built in the USA: The vehicle’s final assembly (where it’s actually put together) must happen in the United States. Not all American brands are built in the US—some are made abroad, while some foreign brands have US factories.

To check if your vehicle was assembled in the US, you can use the National Highway Traffic Safety Administration’s VIN decoder tool.
 

How Much Can You Save?

Let’s look at an example:
 

• You buy a new Toyota Highlander assembled in Kentucky, costing about $48,635.
• You finance it over five years at a 6% interest rate, paying about $2,746 in interest in the first year.
• A married couple filing jointly who earns $160,000 a year would fall into the eligible income bracket. In the first year, they could deduct $2,746 from their taxable income, which could save them about $604 in taxes. Over five years, as interest payments decrease and are deducted each year, total tax savings could be around $1,936.

Keep in mind, the deduction gets smaller if you are above the income limits.
 

Is This a Big Savings?

The government estimates this new rule will cost about $31 billion over four years. For most buyers, especially those buying near the average price for a new car, the savings will be modest.

The benefit is greater for people buying more expensive cars and paying more in loan interest. When car shopping, consider what works best for your personal budget—but if you’re deciding between two new vehicles and one qualifies for this deduction, it could be worth considering.

Read next: Where to Buy a Car in 2025: A Guide to Taxes, Fees, and Car Availability

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