Auto Loan Interest Deduction Under OBBBA

May 11, 2026

By: Wiss Team

Wiss Team

Key Takeaways

The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, created a new deduction for interest paid on loans used to purchase qualifying personal-use vehicles. The deduction is available for tax years 2025 through 2028, with a maximum of $10,000 annually.
To qualify, the vehicle must be new (original use begins with you), assembled in the United States, used for personal rather than business or commercial purposes, and purchased with a loan originated after December 31, 2024. Used vehicles and leases are explicitly excluded.
The deduction phases out for taxpayers with modified adjusted gross income (MAGI) above $100,000 for single filers and $200,000 for joint filers. Unlike some other OBBBA provisions, this income threshold is lower; middle-income households benefit most.
Bottom line: This deduction is available to both itemizers and non-itemizers, but the vehicle, the loan, and the assembly location must meet specific criteria. Getting the details right before you file matters.

Personal interest has not been deductible on a federal tax return since 1986. The OBBBA punched a narrow, time-limited exception into that 39-year rule: interest on auto loans for qualifying vehicles is now deductible for the 2025 through 2028 tax years, up to $10,000 per year. The deduction is straightforward in concept and surprisingly specific in practice. Here is what the law actually requires.

The Four Things a Vehicle Must Be to Qualify

Not every car loan generates a deduction. The vehicle has to clear four distinct hurdles, all of which must be met simultaneously.

First, it must be a qualifying vehicle type. The OBBBA covers cars, minivans, vans, SUVs, pick-up trucks, and motorcycles with a gross vehicle weight rating (GVWR) of less than 14,000 pounds. Heavy commercial trucks and vehicles exceeding that weight threshold do not qualify.

Second, the vehicle must be new. “Original use” must begin with the taxpayer claiming the deduction. A used car purchased from a dealer or a private party — regardless of its mileage or age — is explicitly excluded. The law requires the vehicle to be new at the time of purchase.

Third, the final assembly must have occurred in the United States. This requirement was clarified by the IRS in an update issued July 25, 2025. The location of final assembly appears on the vehicle information label affixed to vehicles on dealer premises. Taxpayers can also use the vehicle’s place of manufacture as reported in the Vehicle Identification Number (VIN), which can be looked up through the National Highway Traffic Safety Administration’s VIN Decoder tool at the NHTSA website. Vehicles assembled outside the United States do not qualify, regardless of the brand or the manufacturer’s headquarters.

Fourth, the vehicle must be for personal use. Business-use vehicles and vehicles used for commercial purposes are excluded. A truck purchased for a sole proprietorship’s delivery operations, for example, does not qualify under this provision. The deduction is designed for personal transportation, not business assets.

The Loan Requirements

The vehicle is only half of the equation. The loan itself has conditions as well.

The loan must have been originated after December 31, 2024. Loans originated before 2025 — including refinances of pre-2025 loans that simply extended or modified an existing balance — generally do not qualify. A refinance of a qualifying post-2024 loan is generally eligible, but only on the refinanced amount.

The loan must be secured by a lien on the vehicle. And lease payments do not qualify under any circumstances. If you are leasing rather than financing a vehicle purchase, this deduction is not available to you.

Income Limits: Who Gets the Full Deduction and Who Gets Less

The deduction phases out for taxpayers with modified adjusted gross income (MAGI) above $100,000 for single filers and $200,000 for joint filers. Taxpayers below those thresholds can claim the full deduction, up to $10,000 or the amount of interest actually paid, whichever is lower. Taxpayers above the thresholds receive a reduced deduction that scales down as income rises.

This income phase-out range is notably lower than the phase-out thresholds for the OBBBA’s tips and overtime deductions, which begin at $150,000 for single filers. The auto loan interest deduction is aimed at middle-income households, and the income limits reflect that intent.

The deduction is available to both taxpayers who itemize and those who take the standard deduction. That is significant: most personal deductions under the prior law required itemizing, which eliminated the benefit for anyone whose standard deduction exceeded their total itemized deductions. This one does not carry that restriction.

What You Need to Include on Your Return

When claiming the deduction, taxpayers must include the Vehicle Identification Number (VIN) of the qualifying vehicle on the tax return for each year the deduction is claimed. Lenders and interest recipients are required to file information returns with the IRS and furnish borrowers with year-end statements showing the total interest received during the year, similar to the Form 1098 that mortgage interest payers receive. The IRS is providing transition relief to lenders for tax year 2025 as the reporting infrastructure is being established.

What This Deduction Is Not

A few common misconceptions are worth clearing up directly.

This is a deduction, not a credit. It reduces your taxable income — it does not directly reduce your tax bill dollar-for-dollar. At a 22% marginal rate, a $10,000 deduction translates to $2,200 in tax savings, not $10,000. The benefit is real, but it should be evaluated against the loan’s actual interest cost, not the deduction’s sticker price.

The deduction expires after 2028. It is a temporary provision, not a permanent change to the tax code. Its availability in any given year depends on there being no subsequent legislation that alters or eliminates it.

Business-use vehicles with separate depreciation deductions under IRC §179 or bonus depreciation are not eligible for this deduction. The provision is for personal vehicles only.

Making Sure You Get It Right

The auto loan interest deduction is one of several new individual tax provisions introduced by the OBBBA, alongside deductions for qualifying tips and overtime pay. Each provision has its own eligibility rules, income thresholds, and documentation requirements. Taxpayers who purchased a qualifying vehicle in 2025 or plan to do so should confirm the assembly location, verify the loan origination date, and maintain documentation of interest paid.

Wiss Tax Advisory works with individual taxpayers to accurately identify and apply all available deductions under current law, including the new OBBBA provisions. If you have questions about how the auto loan interest deduction interacts with your broader tax situation, contact Wiss for guidance.