Is there a deduction for car loan interest?

The One Big Beautiful Bill Act (OBBBA) signed into law on July 4, 2025 adds a temporary deduction of up to $10,000 per year for qualified car loan interest. Eligible taxpayers may take an above-the-line deduction on their federal tax return for tax years 2025-2028. This means the deduction applies even if you take the standard deduction (i.e. - you don’t have to itemize).
 
Loan requirements

• The loan must be secured by a lien on the vehicle
• The loan must originate after December 31, 2024
• The interest must be paid on that loan during the tax year
• Only the interest portion of your car payment qualifies - not principal
• Lease payments do NOT qualify

 
Vehicle specifics

• The vehicle must be purchased new (used vehicles do not qualify)
• The vehicle must be for personal use only (not business or commercial use)
• The vehicle must be a car, SUV, pickup, van, or motorcycle with a gross vehicle weight under 14,000 pounds
• The vehicle must have undergone final assembly in the United States (determined by the vehicle’s label or VIN)

 
Income phase-outs

• The deduction phases out at higher income levels
• Phase-out begins at:
  • $100,000 modified adjusted gross income for single filers
  • $200,000 for joint filers
• High-income taxpayers may receive a reduced or zero benefit