How to deduct new car loan interest under the OBBB

Core Points - The One Big Beautiful Bill Act introduces a tax deduction for car loan interest, allowing eligible taxpayers to deduct up to $10,000 from their federal taxes for tax years 2025 through 2028 [2][14] - The deduction is an above-the-line deduction, meaning it can be claimed regardless of whether the taxpayer itemizes deductions or takes the standard deduction [2] Eligibility Criteria - To qualify for the full deduction, single filers must have a taxable income not exceeding $100,000, while married couples filing jointly must not exceed $200,000; the deduction phases out for incomes above these thresholds [3] - The vehicle must be for personal use, purchased new after December 31, 2024, and have its final assembly location in the U.S. [7][16] Calculation of Deduction - The deduction is based on the interest paid on the car loan, not the total loan payment; for example, if a taxpayer paid $2,418 in interest, this amount would reduce their taxable income, not their tax bill directly [8][10] - Taxpayers must file Schedule 1-A to report the deduction, including the amount of interest paid and the vehicle's VIN [12][15] Additional Information - Electric vehicles qualify for the deduction if they meet the same criteria as other vehicles [16] - Business-related car loan interest deductions are also available for self-employed individuals or business owners, following existing rules prior to the OBBB [18][19]