2025 Auto Loan Interest Deduction

For the 2025 tax year, a new federal law allows eligible individuals to deduct up to $10,000 in interest paid on a qualifying auto loan.

This is an “above-the-line” deduction, meaning you can claim it even if you take the standard deduction and do not itemize.

The deduction is available for personal-use vehicles purchased with a loan originated after December 31, 2024, and before January 1, 2029.

Eligibility Requirements

To qualify for the deduction, both the taxpayer and the vehicle must meet specific criteria:

Taxpayer Requirements:

• Income Limits: The deduction phases out for higher-income earners.
• Single filers: The deduction begins to phase out at a Modified Adjusted Gross Income (MAGI) of $100,000 and is fully eliminated at $150,000.
• Married couples filing jointly: The deduction begins to phase out at a MAGI of $200,000 and is fully eliminated at $250,000.
• Loan must be for personal use: The vehicle must be for personal, not business or commercial, use.

Vehicle and Loan Requirements

• New vehicles only: The vehicle must be new (original use commences with the taxpayer); used vehicles or leases do not qualify.
• U.S. Assembly: The vehicle must have had its final assembly in the United States. You can verify this by checking the vehicle’s information label or using the NHTSA VIN Decoder website (VINs starting with 1, 4, or 5 typically indicate U.S. assembly).
• Vehicle Type: Eligible vehicles include cars, minivans, vans, SUVs, pickup trucks, and motorcycles with a gross vehicle weight rating (GVWR) under 14,000 pounds.
• Loan Origin: The loan must have originated after December 31, 2024, and be secured by a lien on the vehicle. Refinanced loans may qualify if the original loan met all criteria.

How to Claim the Deduction

For the 2025 tax year (when filing in early 2026), you will need to take the following steps:

• Obtain an interest statement: Your lender must provide a statement (potentially a Form 1098 or similar document) by January 31, 2026, showing the total amount of interest paid in 2025.
• File new Schedule 1-A: You can claim the deduction by filing a new form with your tax return: Schedule 1-A, an attachment to your Form 1040.
• Provide the VIN: You must include the Vehicle Identification Number (VIN) of the qualified vehicle on your tax return.