IRS Launches New Car Loan Interest Deduction: Save Up to $10,000

The IRS has introduced a new tax deduction on car loan interest, a benefit that could put serious money back in the pockets of American taxpayers.

This deduction, part of the federal One, Big, Beautiful Bill, applies to interest paid on loans for new U.S.-manufactured vehicles purchased for personal use after December 31, 2024.

 

What You Can Deduct

• Up to $10,000 per year in car loan interest.
• Applies whether you take the standard deduction or itemize.
• Available for vehicles purchased between January 1, 2025 and December 31, 2028.
• Married couples filing separately can each claim the $10,000 limit individually.

Eligibility Requirements

To qualify, your car must:

• Be brand new.
• Have final assembly in the United States (check your VIN on the NHTSA site).
• Be purchased primarily for personal use.
• Be financed with a loan that meets IRS criteria.

Income Limits

• Single filers: Full deduction up to $100,000 MAGI.
• Married couples: Full deduction up to $200,000 MAGI.
• Deduction phases out by $200 for every $1,000 above these limits.

Read: Tax Refunds Could Increase by Up to $1,000 in 2026
 

How Much Could You Save?

Experts estimate savings in the hundreds or thousands:

• A typical buyer could deduct around $4,000.
• With a 6.5% six‑year loan, deductions could reach $3,000 in the first year and about $1,800 annually thereafter.

This comes at a time when average monthly car payments hover around $750 and auto loan delinquencies are rising.

How to Claim the Deduction

The IRS is finalizing details, but here’s what to prepare:

• Gather loan statements.
• Complete Annex 1‑A with loan info and VIN.
• Submit with your federal tax return.

Lenders will also file information returns with the IRS to verify interest paid.

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