H.R.1s Deduction for Auto Loan Interest
Effective for 2025 through 2028, a taxpayer may deduct up to $10,000 of “qualified interest” paid on a loan used to purchase a “qualified new vehicle.” This deduction is available for taxpayers who itemize or take a standard deduction. Full deduction is available for taxpayers with modified adjusted gross income (AGI) under $100,000 or $200,000 for joint filers. The deduction completely phases out for taxpayers with modified AGI over $149,000 or $249,000 for joint filers.
Definitions:
“Qualified interest” is paid on a loan that originates after 12.31.2024 and is used to purchase a new, personal-use vehicle.
“Qualified vehicle” is a car, minivan, van, SUV, pick-up truck or motorcycle, with a gross vehicle weight rating of less than 14,000 pounds that has final assembly in the United States.
The vehicle identification number (VIN) will be reported on the tax return, and the VIN Decoder website for the National Highway Traffic Safety Administration (NHTSA) can be used to verify final assembly location.
Important note – used vehicles, leased vehicles, and business/commercial-use vehicles do not qualify.
Reporting
Taxpayers should receive an information form from the lender reporting the total amount of interest paid during the taxable year.
Guidance
The IRS is tasked with providing transition relief for tax year 2025 for the new reporting requirements related to auto loan interest.