New Car Loan Interest Deduction for 2025: How It Works
One Big Beautiful Bill Act · NEW FOR 2025
The OBBBA introduces a new federal income tax deduction of up to $10,000 per year for interest paid on loans for new U.S.-assembled vehicles. Here's who qualifies and how to claim it.
The One Big Beautiful Bill Act creates a brand-new federal income tax deduction for interest paid on loans used to purchase new motor vehicles assembled in the United States. For taxpayers financing a new car or truck in 2025, this deduction — worth up to $10,000 per year in deductible interest — can meaningfully reduce your tax bill.
What the Deduction Covers
The car loan interest deduction applies to interest paid during the tax year on a loan used to purchase a new motor vehicle that was:
• Purchased new (not used)
• Assembled in the United States
• Used primarily for personal (non-business) purposes
• Financed through a conventional auto loan (not a lease)
The maximum deductible interest is $10,000 per year.
The 'Assembled in the U.S.' Requirement
The vehicle must be assembled in the United States to qualify. This generally means the final assembly plant is located in the U.S. — not simply that the manufacturer has U.S. operations. The vehicle's Monroney label (window sticker) identifies the final assembly location. Popular U.S.-assembled vehicles include many models from Ford, GM, Tesla, Toyota (many models), Honda (many models), Volkswagen (some models), and others.
Income Limits
The deduction phases out for higher-income taxpayers. The phase-out begins at MAGI of approximately $100,000 for single filers and $200,000 for married filing jointly. Taxpayers above these thresholds will see a reduced benefit, and the deduction is eliminated at higher income levels.
How It Interacts With Business Use
If you use the vehicle for both personal and business purposes, the deduction becomes more complex. Business-use vehicle interest may be deductible as a business expense instead. Mixing personal and business use requires careful allocation, and claiming this deduction on a primarily business vehicle may conflict with other business vehicle deduction strategies. A tax professional can help you choose the best approach.
Electric Vehicles and the OBBBA
The OBBBA simultaneously terminated the federal EV tax credit (the Section 30D clean vehicle credit) for new electric vehicles for purchases made after July 4, 2025. Taxpayers who were counting on the EV credit to offset the cost of a new electric vehicle should note that the credit is no longer available — but the car loan interest deduction may apply if the EV was assembled in the U.S.
Frequently Asked Questions
Does the deduction apply to used vehicles?
No. Only new vehicles qualify.
Does it apply to leases?
No. Only conventional auto loan interest qualifies, not lease payments.
How do I know if my vehicle was assembled in the U.S.?
The vehicle's window sticker (Monroney label) lists the final assembly location. You can also look up the Vehicle Identification Number (VIN) on the National Highway Traffic Safety Administration's website.
Can I claim this deduction AND business auto expenses?
If the vehicle is used for business, you generally need to choose between claiming the car loan interest as a personal deduction vs. deducting business vehicle expenses through Schedule C or Form 2106. A tax professional can determine which approach saves you more.
Is this the same as the mortgage interest deduction?
No. This is a separate new deduction specifically for auto loan interest on new U.S.-assembled vehicles. The mortgage interest deduction for home loans still exists separately on Schedule A.