New Car Interest Deduction Good for Up to $10K
The new car interest deduction has been getting more attention as a new tax season gets ready to start. The IRS recently revealed guidelines for the deduction, which covers qualified vehicles bought in 2025 through 2028.
The tax break is limited to individuals who earn $100,000 or less annually ($200,000 if filing jointly). Taxpayers who qualify can deduct up to $10,000 in loan interest on qualified cars. The key requirements are
- the vehicle must be new, not used,
- for personal use,
- purchased, rather than leased, and
- assembled in the United States.
You can find out where a vehicle had its final assembly by checking the vehicle’s information label or using the Vehicle Identification Number (VIN). A VIN starting with 1, 4, or 5 normally indicates the vehicle was made in the U.S.
More Requirements
Furthermore, the loan must also be new, and not a refinancing of an existing loan. Eligible vehicles include cars, minivans, SUVs, pickup trucks and motorcycles weighing less than 14,000 pounds gross vehicle weight.
While the new car interest deduction is aimed at cars bought for personal use, the draft IRS form shows what could be an exception. Car owners who use their vehicle in the gig economy – for example, driving for Uber on the weekends – may still be able to take advantage of the deduction.
The deduction is available for taxpayers who take the standard deduction, as well as those who itemize.
Bear in mind that the deduction is solely on the loan interest, not the total car payment. For example, if a taxpayer bought a $50,000 vehicle with a loan term of five years, at current rates the total interest paid at the end of the loan would be around $8,000.
Links
The Federal Register has the proposed guidelines for the new car interest deduction, and the public can make comments here.
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