If you financed a new car last year, there’s a tax break you should know about that could put hundreds of dollars back in your pocket.
The auto loan interest deduction, signed into law by President Donald Trump last summer as part of the One Big Beautiful Bill Act, lets eligible taxpayers write off interest paid on qualifying vehicle loans.
With car ownership costs hitting record highs, this deduction could give American drivers some relief. But before you get too excited, here’s what to know and how to check if you qualify.
Who qualifies for the deduction
This tax break isn’t available to everyone who bought a car last year. You’ll need to check several boxes to claim it.
First, the vehicle must be new. If you purchased a used car or leased a vehicle, you won’t qualify.
Second, the car must have undergone final assembly in the U.S. The vehicle must have been physically put together at a U.S. plant before heading to the dealership.
You can verify where your car was assembled by asking at the dealership where you purchased the car, looking up your vehicle identification number (VIN) or checking on the National Highway Traffic Safety Administration’s website.
Third, the vehicle must be purchased primarily for personal use and weigh less than 14,000 pounds. According to the IRS, motorcycles, pickup trucks, vans, SUVs, minivans and cars are eligible, while trailers, campers and all-terrain vehicles are not. Business vehicles also don’t qualify for this tax break.
Income limits for the deduction
This tax deduction is effective for tax years 2025 through 2028. It has a yearly maximum of $10,000, which phases out with higher incomes.
Single filers with modified adjusted gross income (MAGI) up to $100,000 can claim the full deduction. Married couples filing jointly can earn up to $200,000 and still qualify for the maximum benefit. Your MAGI is your adjusted gross income plus any tax-exempt income.
Married couples filing separately could each claim up to the full amount if they both have eligible vehicles.
Above those thresholds, the deduction decreases by $200 for every additional $1,000 you earn. So a single filer making $110,000 would see their potential deduction reduced by $2,000.
You also don’t need to itemize to claim this deduction. It’s available whether you take the standard deduction or itemize your deductions.
“The auto loan interest deduction could cut taxes by hundreds or even thousands of dollars for eligible taxpayers, and recent data from the Treasury Department suggest millions of people could claim the deduction this year,” Andrew Lautz, director of tax policy at the Bipartisan Policy Center, told CBS News.
What you need to do now
Start by gathering your 2025 auto loan statements showing how much interest you paid. You’ll also need your vehicle’s VIN to prove it was assembled in the U.S.
From there, complete a Schedule 1-A form with information about your income, auto loan details and VIN, then submit it with your tax return. Although if you use a tax professional or tax software to prepare your return, the pro or software will handle filling out this form for you; you’d just answer some questions.
If you’re unsure whether you qualify, consult with a licensed tax preparer or check IRS guidance directly.
Should this influence your car-buying decision?
As of now, the deduction runs through Dec. 31, 2028, so if you’re considering a new vehicle purchase in the next few years, it could factor into your calculations.
That said, tax experts generally caution against letting a deduction drive a major purchase. A potential tax cut doesn’t justify buying a $50,000 vehicle you wouldn’t have purchased otherwise.
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