The Internal Revenue Service has issued guidance on a new tax break for Americans buying new vehicles. Taxpayers who purchase cars assembled in the United States may be able to deduct up to $10,000 in interest on their car loans, starting with the 2025 tax year.
The deduction is temporary and applies to vehicles purchased through 2028, according to Forbes and Cleveland.com.
Which vehicles qualify
To be eligible, the car must be new and assembled in the United States. This includes passenger cars, SUVs, minivans, vans, pickup trucks, and motorcycles with a gross vehicle weight of less than 14,000 pounds.
Buyers can check the vehicle’s assembly location using the Vehicle Identification Number (VIN). Cars with VINs starting with 1, 4, or 5 are typically US-assembled.
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Loan requirements
The deduction only applies to loans taken out after December 31, 2024. It must be for a personal-use vehicle and secured by the car itself.
Leased or used vehicles do not qualify. If the loan is refinanced, the interest on the new loan may still qualify, provided the original loan met the requirements.
How much you can claim
Interest paid on the loan can be deducted up to a $10,000 cap per vehicle. The deduction applies whether or not taxpayers itemize their deductions. Forbes explains that for a $50,000 car with a 6% interest rate over five years, the first-year deductible interest could be around $2,880.
However, the actual tax savings depend on your income due to phaseouts, which start at a modified adjusted gross income of $100,000 for individuals and $200,000 for joint filers.
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Reporting and lender obligations
Taxpayers must report the VIN when claiming the deduction. Lenders must provide borrowers with statements showing the total interest paid, along with details such as the loan origination date, principal, and a description of the vehicle.
For 2025, lenders can provide this information online or via statements, but from 2026 onward, they must issue official tax forms similar to Form 1098.
Temporary relief, not an incentive to overspend
While the deduction offers potential tax savings, experts caution against buying a car solely to benefit from it. For most buyers, the deduction reduces taxes modestly relative to the total cost of a new vehicle.
The IRS is currently accepting public feedback on the proposed regulations through February 2, 2026. The car loan interest deduction is part of the broader One Big Beautiful Bill Act, which includes other targeted breaks such as the “No Tax on Tips” and “No Tax on Overtime” provisions.
Buying an American-made car? Here’s what you need to know about the IRS car tax deduction
