A new tax break included in The One Big Beautiful Bill Act (OBBBA) could ease the financial burden of car-buying by allowing borrowers to deduct auto loan interest. Although the plan is intended to provide savings, it’s important for buyers to understand the qualifications for the tax benefit.

How the auto loan interest tax deduction will work:

• The measure temporarily lets car buyers write off up to $10,000 a year in interest paid on qualifying auto loans.
• The tax break will start with purchases made in 2025 and run through 2028.
• You won’t have to itemize to claim the deduction—it’s taken before AGI is calculated.

How a vehicle purchase will qualify:

• The car must be new, for personal use, and have its final assembly in the United States requirement.
• Passenger vehicles such as cars, minivans, vans, SUVs, pickup trucks, or motorcycles, weighing less than 14,000 pounds qualify. ATVs, trailers, campers, used cars, fleet vehicles, salvaged vehicles, leases and vehicles assembled abroad are not eligible.
• The deduction is limited to $10,000 per year and phases out for single filers earning more than $100,000 or joint filers making over $200,000.
• The deduction applies to new cars with loans originating after December 31, 2024, through 2028 and only if the vehicle has final assembly in the U.S.

What is U.S. ‘final assembly’?

The IRS issued a statement that the place of final assembly for purposes of the car loan interest deduction is the location listed on the vehicle’s information label.

How can you find that information?

• New vehicles at dealerships should have an information label that lists the final assembly location.
• You can also look up the Vehicle Identification Number (VIN).
• The National Highway Traffic Safety Administration VIN decoder tool could also be useful in determining where your car was assembled.

Reporting and paperwork that lenders must do:

Under the new law created in Section 6050AA of the bill, there are new reporting requirements for lenders. For buyers’ ease in claiming the deductions, lenders who receive $600+ in interest on qualifying vehicle loans must report details to the IRS and give taxpayers statements that include the following information:

• Lender name and address
• Interest received
• Loan origination date
• Outstanding principal
• Vehicle info (year, make, model and VIN)

Information buyers should keep to claim and substantiate the deduction:

• The Monroney sticker or vehicle label showing final assembly
• Your loan agreement
• Vehicle info (year, make, model and VIN)
• Lender interest statement
• Proof of interest paid (bank statements or lender portal receipts)

Important caveats and strategy tips to consider:

• The tax break is temporary (2025–2028). Don’t choose a car solely for this tax break. Personal needs should be weighed against total cost and financing rate of a new car purchase.
• Whether a refinance qualifies may depend on the origination date rules and additional IRS guidance. Keep careful documentation should you need to substantiate a claim.
• The new law changes EV credits and other tax incentives. If you were counting on IRA-era EV credits, check the timing—some credits change or phase out under the bill.

Summary

Financing a U.S.-assembled passenger vehicle in 2025–2028 with an income level below the phaseout thresholds may make you eligible to deduct up to $10,000 of qualifying auto-loan interest per year as an above-the-line deduction. Your loan and vehicle must meet the detailed statutory and IRS rules, and your lender needs to provide the required reporting for you to claim the deduction. Keep the Monroney label, your loan paperwork, the vehicle information and your lender’s interest statement. Finally, and most importantly, ensure you check IRS guidance and consult with a tax professional when you prepare your return.