Can You Deduct Your 2025 Auto Loan Interest?

If you’re planning to buy a new car soon or you financed one recently, you may have heard about a new tax break that lets certain drivers deduct the interest they pay on their auto loan. The IRS has released guidance on this change, but the rules are not widely understood yet.

Here’s a breakdown of this new deduction, who qualifies, and how it could benefit you.

TL;DR: Starting with your 2025 tax return, a new federal provision lets many drivers deduct up to $10,000 of interest paid on qualifying auto loans for personal-use vehicles purchased after Dec. 31, 2024 and assembled in the U.S. The deduction applies through tax year 2028, can be claimed whether you itemize or not (“above-the-line”), and phases out for higher-income taxpayers.

Why This New Deduction Matters

For years, auto-loan interest was not deductible for personal vehicles. That meant drivers paid interest with no tax advantage, unlike mortgage interest or certain education-related interest.

But under the new federal law, qualifying consumers can deduct up to $10,000 per year in auto-loan interest beginning with the 2025 tax year. Even better, this deduction is “above the line,” which means you can claim it even if you take the standard deduction.

This could mean saving hundreds of dollars over the life of your loan, depending on your interest rate and loan balance.

Who Qualifies for This 2025 Auto Loan Interest Deduction?

Not every vehicle or loan qualifies, so it’s important to understand the criteria. You may be eligible if:

1. The vehicle is newly purchased. Only NEW vehicle loans originated after December 31, 2024, count. Used cars and leased vehicles do not qualify for the deduction.
2. The vehicle was assembled in the United States. This is one of the biggest requirements. To qualify, the car must have completed final assembly in the U.S. You can usually verify this by:

• • Checking the vehicle information label
  • Reviewing your window sticker (it often lists the assembly location)
  • Looking up your VIN (Vehicle Identification Number). This National Highway Traffic Safety Administration (NHTSA) VIN Decoder can help you identify a vehicle’s place of manufacture.

3. The vehicle is for personal use. Cars used partially or entirely for business are not eligible for this personal-use deduction, though business-use vehicles have their own set of tax rules.
4. The loan originated on or after December 31, 2024. Only interest paid on loans issued after this date can be deducted under the new law.
5. The vehicle is a standard passenger vehicle. Eligible vehicles include sedans, SUVs, vans, minivans, and light trucks under 14,000 pounds.

If you meet these requirements, you may be able to take advantage of the full deduction amount (up to $10,000 annually).

What the Deduction Could Mean for You

The biggest benefit of this change is that it reduces your adjusted gross income (AGI), which may increase your eligibility for other tax benefits as well.

How much you save depends on:

• Your loan amount
• Your interest rate
• How much interest you pay each year

For some borrowers, the annual interest may only amount to a few hundred dollars—but that still translates into real tax savings. For others, especially those financing higher-priced vehicles, the deduction could be significantly more valuable.

How to Deduct Your 2025 Auto Loan Interest:

1. Keep track of how much interest you pay. Financial institutions will be required to report this information more clearly beginning in 2025.
2. Confirm your vehicle qualifies. Check the final assembly location before you assume you’re eligible.
3. File using the new IRS form attachment. This deduction will appear on a supplemental tax form introduced with the new law.
4. Consult a tax professional if you’re unsure. Because this rule is new and evolving, a tax advisor can ensure you claim it correctly.

Important Notes and Limitations

• The rule does not apply to used cars, leases, or business vehicles.
• The deduction is temporary, currently allowed for tax years 2025 through 2028.
• If you refinance an existing vehicle purchased before January 1, 2025, you are not eligible to deduct your 2025 auto loan interest.

A Potentially Valuable Savings Opportunity

If you’re considering purchasing a new, U.S.-built vehicle in 2025 or later, this opportunity to deduct your 2025 auto loan interest could help reduce your tax bill. It’s a win for consumers who want to buy American-built vehicles and reduce borrowing costs at the same time.

As always, be sure to consult with a trusted tax professional for personalized guidance to deduct your 2025 auto loan interest. And if you’re planning to finance a new vehicle, Members Trust is here to help you every step of the way—from competitive rates to local, member-focused support.