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There is a new deduction for vehicle loans included in the tax bill that was passed this year. The deduction may allow taxpayers to deduct interest from their car loans but only if certain requirements are met. The biggest requirement is that the final assembly must be completed in the US. Refinanced cars may also qualify. Also, this deduction does not include vehicle purchases for businesses.
The placement of the deduction on the tax form is expected to be on Schedule 1A and will be taken as a non-itemized deduction unless regulations change. IRS.gov guidance reads as follows:
“New deduction: Effective for 2025 through 2028, individuals may deduct interest paid on a loan used to purchase a qualified vehicle, provided the vehicle is purchased for personal use and meets other eligibility criteria. (Lease payments do not qualify)
•Maximum annual deduction is $10,000.
•Deduction phases out for taxpayers with modified adjusted gross income over $100,000 ($200,000 for joint filers).
To qualify for the deduction, the interest must be paid on a loan that is:
•Originated after December 31, 2024
•Used to purchase a vehicle originally used by the taxpayer (used vehicles do not qualify)
•For a personal use vehicle (not for business or commercial use)
•Secured by a lien on the vehicle
If a qualifying vehicle loan is later refinanced, interest paid on the refinanced amount is generally eligible for the deduction.
Qualified vehicle: A qualified vehicle is a car, minivan, van, SUV, pick-up truck or motorcycle, with a gross vehicle weight rating of less than 14,000 pounds, and that has undergone final assembly in the United States.
To determine if a vehicle had final assembly in the U.S., check one of these:
•The information label attached to the vehicle on a dealer's premises
•The vehicle identification number (VIN)
•The National Highway Traffic Safety Administration (NHTSA) VIN Decoder
Taxpayer eligibility: Deduction is available for both itemizing and non-itemizing taxpayers. The taxpayer must include the vehicle identification number (VIN) of the vehicle on the tax return for any year when the deduction is claimed.
Reporting: Lenders or other recipients of qualified interest must file return information with the IRS and furnish statements to taxpayers showing the total amount of interest received during the taxable year.
Guidance: The IRS will provide transition relief for tax year 2025 for interest recipients subject to the new reporting requirements.”
-One, Big, Beautiful Bill provisions | Internal Revenue Service.
Disclaimer: The views expressed in these articles are the opinion of the writer and is not tax advice. Tax law is always subject to change. This article is for information purposes only. Always consult a qualified tax professional for advice on tax planning and strategies.
