KEY TAKEAWAYS Under a new tax break from the "One Big, Beautiful Bill," taxpayers will be able to deduct part of the interest they paid on a car loan in 2025. The vehicle must be new and have undergone final assembly in the United States. The car loan interest deduction is available to itemizing and non-itemizing taxpayers, and to those who make $150,000 or less ($250,000 for joint filers). If you purchased a new car in 2025, you may be able to deduct part of your loan payment from your taxes. A ...

Core Points - The new tax deduction for car loan interest applies only to new cars assembled in the United States, excluding leases and used car loans [10][12][14] - The deduction allows taxpayers to deduct up to $10,000 in car loan interest, potentially resulting in tax savings ranging from $300 to $900 for many new car buyers [12][13] - Higher-income households may face limitations on the deduction, with phase-out thresholds set at $150,000 for single filers and $250,000 for joint filers [17][18] Group 1: Tax Deduction Eligibility - The car loan interest deduction is only available for loans on new cars with final assembly in the U.S., and it does not apply to leases or used car loans [10][14] - Taxpayers must include the Vehicle Identification Number (VIN) on Schedule 1-A to claim the deduction, and the VIN must be accurate [27][29] - The deduction is available for tax years 2025 through 2028, but it may not cover the entire duration of a car loan [14][16] Group 2: Leasing and Financing Trends - Leasing is particularly popular in states like Michigan, where nearly 53% of new vehicles sold in Q3 2025 were leased, compared to 5% or fewer in states like Alaska and Arkansas [3][4] - Many consumers are trading in vehicles with negative equity, which complicates the deduction process as interest on negative equity rolled into new loans is not deductible [20][22] - The average amount owed on upside-down loans reached a record $6,905 in Q3 2025, indicating a growing trend of negative equity among new car buyers [23] Group 3: Documentation and Compliance - Taxpayers should prepare documentation early, including original loan agreements and interest statements, to facilitate claiming the deduction [26][34] - Lenders are expected to provide a vehicle loan interest statement (1098-VLI) starting in 2026, but for 2025, this is optional [32][33] - Proof of personal use of the vehicle is required to claim the deduction, with more than 50% of the expected use needing to be personal [36]

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]

Core Points - Taxpayers purchasing new cars in 2025 may qualify for a tax break if the vehicle is made in the US, as per IRS guidance [1][2] - The tax deduction applies to new cars assembled in the US from 2025 through the end of 2028, with buyers needing to verify the final assembly location via the vehicle information label or VIN [2][3] - Some buyers may not qualify for the tax break even if they purchase new vehicles in 2025 due to assembly location [3] Industry Insights - Among the 25 most popular new car models sold domestically in 2024, 14 were assembled solely in the US, including models like Ford F-series trucks and Chevy Silverado [4] - If the deduction had been in effect for 2024, approximately 4 million out of 7 million units sold would have qualified for the deduction, highlighting the potential impact on consumer behavior [5] - The tax break initiative is part of a broader strategy by the administration to support domestic auto production and consumption, although its overall effect on the auto industry remains uncertain due to macroeconomic factors [6][7]