Who qualifies for the new deduction
A new tax deduction is available this filing season for some taxpayers who bought a new vehicle in 2025: they may be able to deduct the interest paid on their auto loan. The provision was created by the One Big Beautiful Bill Act and applies only to vehicles purchased after Dec. 31, 2024. Loans taken out earlier do not qualify, and purchases of used vehicles are excluded.
Eligibility also depends on income. The deduction phases out for higher earners based on modified adjusted gross income, or MAGI. For single filers, the phaseout applies at $100,000 MAGI, while for married couples filing jointly, the phaseout begins at $200,000. Because MAGI is calculated after certain adjustments, some households near the thresholds may still qualify for a partial deduction.
Final assembly in the United States is required
To claim the deduction, the vehicle must have completed final assembly in the United States. That is not the same thing as buying an “American brand.” Some vehicles sold under U.S. brands may be assembled abroad, while some vehicles from foreign brands may be assembled domestically. Tax professionals advise checking the vehicle’s status using the vehicle identification number (VIN) to confirm where final assembly occurred.
The vehicle must also be for personal use, not primarily for business.
How much you can deduct and how it works
If you and the vehicle qualify, you can deduct up to $10,000 in auto-loan interest paid per year. To determine your total, you will need to review your loan paperwork or account statements to see how much interest you paid during 2025. Tax advisers note that lenders generally do not issue a special year-end tax form for auto-loan interest, so taxpayers may need to calculate it from statements.
Importantly, a deduction reduces taxable income, not taxes owed dollar for dollar. The savings depend on your tax bracket. For example, a $1,000 deduction may reduce taxes by about $220 for someone in the 22% bracket, rather than returning the full $1,000.
Available even if you take the standard deduction
One of the unusual features of this policy is that it can be claimed even by taxpayers who take the standard deduction rather than itemizing. That could broaden the number of households able to benefit, compared with deductions that only apply to itemizers.
Likely a modest benefit, not a major manufacturing lever
Analysts say the deduction may provide a modest financial boost for eligible borrowers, but it is unlikely to reshape car-buying decisions at scale. It does not apply to leases, and it provides no benefit to buyers who used 0% financing, paid cash, or otherwise did not pay interest. Industry observers also note that while the policy is tied to U.S. assembly, the incentive may be too small to drive major new manufacturing shifts on its own.