New Tax Break: You Could Save Thousands on Your Car Loan Interest

If you bought a new car recently, you might be eligible for a significant new tax break.

A recent law signed by President Trump allows for a "car loan tax deduction," which lets millions of Americans lower their tax bills by deducting the interest they pay on their auto loans.

Here is a simple breakdown of how it works, who qualifies, and how to claim it.
 

What is the new tax break?

In an effort to make car ownership more affordable and support American manufacturing, the government now allows taxpayers to deduct the interest paid on loans for new, American-made vehicles.

This works similarly to the well-known mortgage interest deduction. By deducting the interest, you lower your "taxable income," which usually results in a smaller tax bill or a larger refund.
 

Do I qualify?

Not every car purchase qualifies for this break. To claim the deduction, you must meet these specific requirements:
 

• New Cars Only: The deduction only applies to new vehicle purchases. If you bought a used car or are leasing a vehicle, you do not qualify.
• Made in the USA: The vehicle must have undergone "final assembly" in the United States.

Tip: You can check where your car was built by entering your Vehicle Identification Number (VIN) on the National Highway Traffic Safety Administration (NHTSA) website.
 

• Personal Use: The car must be used primarily for your personal life, not for business.
• Timeframe: The car must have been purchased between January 1, 2025, and December 31, 2028.

 

Income Limits

Your eligibility also depends on how much money you earn.
 

1. Single Fillers: You get the full deduction if you earn up to $100,000.
2. Married Couples: You get the full deduction if you earn up to $200,000.

If you earn more than these amounts, the size of the deduction gradually decreases.
 

How much can I save?

While everyone’s situation is different, experts estimate that a typical eligible buyer could claim around $4,000 in deductions.

The law allows you to deduct up to $10,000 per year in interest payments. For a buyer with a standard interest rate, this could mean saving hundreds or even thousands of dollars on their total tax bill over the life of the loan.
 

How do I claim it?

The good news is that you can claim this deduction even if you take the "standard deduction" (you don't have to itemize all your receipts). To claim it:
 

• Gather your records: Find your 2025 auto loan statements that show how much interest you paid.
• Use the correct form: You will need to fill out a Schedule 1-A form.
• Provide Car Info: You will need to include your income details and your car’s VIN to prove it was American-made.

 

How long will this last?

This tax break is not permanent. It is currently scheduled to be available for vehicles purchased through the end of 2028, at which point the law is set to expire.

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