What the New $10,000 Vehicle Loan Interest Deduction Means for Car Buyers

Buying a new vehicle in the next few years could come with an additional tax benefit.

Under a provision of the One Big Beautiful Bill Act, eligible taxpayers may be able to deduct up to $10,000 in qualifying vehicle loan interest each year for tax years 2025 through 2028. Unlike many tax deductions that require taxpayers to itemize, this deduction is available whether you take the standard deduction or itemize.

For shoppers considering a new vehicle, it’s worth understanding how the deduction works and whether the vehicle and loan meet the requirements.

What Is the $10,000 Vehicle Loan Interest Deduction?

The new provision allows eligible individuals to deduct up to $10,000 of interest paid on a qualifying vehicle loan during a tax year.

It’s important to understand that this is a tax deduction, not a $10,000 rebate or tax credit. The deduction reduces the amount of income subject to federal income tax. The actual tax savings will depend on your individual tax situation.

The deduction is currently available for tax years 2025 through 2028.

Who May Qualify?

There are several requirements to keep in mind.

Generally, the vehicle must:

• Be new at the time of purchase
• Be purchased for personal use
• Be a qualifying passenger vehicle, such as a car, minivan, van, SUV, pickup truck or motorcycle
• Have a gross vehicle weight rating below 14,000 pounds
• Have undergone final assembly in the United States
• Be purchased with a qualifying loan secured by a first lien on the vehicle

Used vehicles and leased vehicles do not qualify for this deduction.

The loan must also have been incurred after December 31, 2024.

How Much Can You Deduct?

Eligible taxpayers can deduct up to $10,000 in qualifying vehicle loan interest per tax return, per year.

That means the deduction is based on the interest you actually pay, not the amount you finance or the total cost of the vehicle. For example, if you pay $6,000 in qualifying interest during the year, your potential deduction would be $6,000—not $10,000.

Your income can also affect how much you are eligible to deduct.

The deduction begins to phase out when modified adjusted gross income exceeds $100,000 for single filers or $200,000 for married couples filing jointly. It is fully phased out at $150,000 for single filers and $250,000 for joint filers.

Why This Matters When Shopping for a Vehicle

If you’re already considering a new vehicle, the deduction could be another factor to discuss with your tax professional when evaluating the overall cost of ownership.

It may be particularly relevant for buyers who are financing a qualifying new vehicle rather than leasing.

However, the tax benefit shouldn’t be the only factor in your purchase decision. Interest rates, loan terms, vehicle price, insurance, maintenance and your overall budget should all be considered.

How Do You Know If a Vehicle Qualifies?

One of the most important requirements is that the vehicle must have undergone final assembly in the United States.

You can verify a vehicle’s assembly information using its VIN (Vehicle Identification Number) through the National Highway Traffic Safety Administration’s VIN Decoder.

Tower Honda of Longview can also help you identify qualifying vehicles and provide information about the vehicle you’re considering.

Already Purchased a New Vehicle?

If you purchased and financed a qualifying new vehicle, you may already be eligible to claim the deduction for qualifying interest you paid during the year.

For 2026 and later, lenders generally will issue Form 1098-VLI when at least $600 in qualifying interest was paid during the year. When filing, taxpayers claim the deduction on Form 1040, Schedule 1-A, Part IV — No Tax on Car Loan Interest.

Thinking About a New Vehicle?

The new vehicle loan interest deduction could make financing a qualifying vehicle an even more interesting option for eligible buyers.

If you’re considering a new vehicle, our team can help you explore available models, financing options and vehicles that meet the requirements for the deduction.

Stop by, take a test drive and find the vehicle that’s right for you.