Thinking about financing a car? Here’s a new tax rule you should look out for. Effective starting 2025 through 2028, the One Big Beautiful Bill Act (OBBBA) introduces a tax deduction that could be beneficial for those buying a new car.
Under this new rule, taxpayers may deduct up to $10,000 per year on car loan interests on their federal tax return. Be sure to consider your modified adjusted gross income (MAGI) as phase outs happen for single filers with MAGI over $100,000, and those filing jointly with MAGI over $200,000. Additionally, the tax deduction is available whether you take the itemized or standard deductions on your tax return.
Vehicle Eligibility Requirements
However, not all vehicles qualify. The IRS lists specific requirements that the vehicle must follow in order to deduct those
interests on car loans—here’s what to look out for:
• Leased vehicles do not qualify
• Purchased after December 31, 2024
• Brand new, personal use
– Original use must start with taxpayer
– No commercial or business use
• Secured by a lien on the vehicle
• Final assembly of vehicle must be in the United States
While the car dealer will provide a label with your vehicle’s information, you can double check using the vehicle’s identification number (VIN) and model year with this website.
The VIN also must be included in your return to allow for the annual deduction every tax year. Some other things to consider is the type of car you are interested in. It must weigh less than 14,000 pounds and be a car, minivan, van, SUV, pick-up truck, or motorcycle.
For those financing a car, this new tax deduction seems favorable! However, be sure to check those specific requirements for you and your vehicle eligibility.
If you need help navigating this new deduction or want to make the most of your tax return, reach out to MRPR—our tax
professionals are ready to guide you every step of the way!