The IRS has unveiled new regulations for a tax break that allows you to deduct up to $10,000 in car loan interest if you purchase an American-made vehicle. This means that if you're currently paying interest on a car loan, you might be able to reduce your tax liability. The deduction applies to loans taken out after December 31, 2024, for new vehicles assembled in the United States. Here's a breakdown of how it works and what you need to know.
How the Car Loan Interest Deduction Works
When you make monthly payments on your car loan, you can deduct the interest portion from your taxes. This deduction is specifically designed for new cars, trucks, SUVs, and other vehicles manufactured in the United States. You can claim this deduction regardless of whether you itemize your taxes or take the standard deduction. The tax break is available for the tax years 2025 through 2028.
Vehicle Qualification
To be eligible for the deduction, your vehicle must meet the following criteria:
- It must be brand new (not a used car).
- It must be built in the United States.
- It can be a car, minivan, van, SUV, pickup truck, or motorcycle.
- It should weigh less than 14,000 pounds.
Loan Qualification
Your car loan must be secured by the vehicle itself, meaning the lender has the right to repossess the car if you fail to make payments. If you refinance your car loan, the interest will still qualify for the deduction, provided your original loan met the requirements. When filing your taxes, you'll need to include your vehicle identification number (VIN) to claim this benefit.
Lender's Role
Your car loan provider will send you information about the interest you've paid throughout the year, similar to how mortgage companies provide tax forms. For 2025, this information can be accessed through their website or app. Starting in 2026, lenders will be required to send an official tax form, similar to Form 1098 for mortgage interest.
Claiming the Deduction
Your lender will inform you of the interest amount paid during the year. You'll use this figure when filing your 2025 taxes in early 2026.
Feedback and Next Steps
The IRS is currently accepting feedback on these new rules until February 2, 2026, via Regulations.gov. These regulations are designed to help both you and your lender prepare for tax season, when this deduction will be available for the first time. For more information, visit the IRS website and search for 'One, Big, Beautiful Bill provisions' or consult a tax professional to determine if this deduction can help you save money.
