A major IRS rule taking effect in 2025 gives taxpayers an important new opportunity to reduce their federal taxable income. For tax years 2025 through 2028, individuals may deduct up to $10,000 in interest paid on qualifying auto loans used to purchase new U.S.-assembled vehicles.
This is one of the few personal-interest deductions allowed outside itemized deductions, and the IRS has confirmed the eligibility requirements.
What the IRS Says (Official Guidance)
According to IRS guidance:
- Effective 2025–2028, individuals may deduct interest paid on a loan used to purchase a qualified vehicle for personal use
- Lease payments do NOT qualify
- Maximum annual deduction: $10,000
- Phase-out begins at:
- $100,000 modified AGI (single)
- $200,000 modified AGI (married filing jointly)
Which Vehicles Qualify?
To claim the deduction, the vehicle must be:
- Brand new (not used, not leased)
- Assembled in the United States
- Purchased for personal use
- Financed with a loan beginning in 2025 or later
Eligible vehicle categories include cars, trucks, SUVs, vans, and motorcycles.
You can verify U.S. assembly using these authoritative databases:
- NHTSA VIN Decoder: https://vpic.nhtsa.dot.gov/decoder/
- DOE Final Assembly Tool: https://afdc.energy.gov/laws/inflation-reduction-act
For more planning guidance, visit our internal page:
https://reckenen.com/tax-strategy/
How to Claim the Deduction
Claiming the deduction is straightforward:
- No itemizing required — available even with the standard deduction
- You will report:
- Total auto-loan interest paid
- The vehicle’s VIN
- Maximum deduction per year: $10,000
Relevant IRS resources:
- Credits & Deductions Overview: https://www.irs.gov/credits-deductions
- Standard vs. Itemized Deductions: https://www.irs.gov/taxtopics/tc501
✅ Is This Deduction in Addition to the Standard Deduction?
Yes. You get this deduction on top of the standard deduction.
This works similarly to other above-the-line deductions (e.g., student loan interest, HSA contributions). You do not have to choose between this and the standard deduction.
Example
Couple filing jointly in 2025:
- Standard Deduction (estimated): ~$30,700
- Auto Loan Interest Paid: $8,400
They can deduct:
$30,700 + $8,400 = $39,100 total deductions
Most taxpayers benefit because the deduction applies even if they don’t itemize.
Income Phase-Out Rules
The deduction begins to phase out at:
- $100,000 AGI (single)
- $200,000 AGI (married filing jointly)
Taxpayers above these limits receive a reduced deduction.
For more on income-related planning, see:
https://reckenen.com/tax-strategy/
Why This Matters
Auto loan interest has risen sharply in recent years. Allowing a federal deduction of up to $10,000 per year makes the cost of financing a new vehicle more manageable — particularly for those considering a U.S.-assembled vehicle in 2025–2028.
For loan rate trends and market data:
- Federal Reserve Auto Loan Rate Data: https://fred.stlouisfed.org/series/RILACBM
- CFPB Auto Loan Consumer Tools:
https://www.consumerfinance.gov/consumer-tools/auto-loans/
What You Should Do Before Buying in 2025
- Verify that the vehicle is assembled in the U.S.
- Confirm your loan begins in 2025 or later
- Track the interest paid
- Save your loan documents
- Record the VIN
- Review your income relative to the AGI phase-out
- For personalized planning, visit:
https://reckenen.com/tax-compliance-preparation/