January 1, 2026, 9:11 a.m. ET
Taxpayers purchasing a new vehicle in 2025 might qualify for significant tax breaks next filing season, provided the vehicle is produced in the United States, according to the Internal Revenue Service.
Those interested should check their vehicle information labels (VINs) to see if their 2025 purchases are eligible for a new tax deduction on auto loan interest, as outlined in IRS guidance released this week.
This tax credit is available for new cars assembled in the U.S. from 2025 until the end of 2028. Buyers can verify eligibility by checking the final assembly location on the vehicle’s information label at the dealership. They may also look up the VIN in the National Highway Traffic Safety Administration’s database to find out about the vehicle’s manufacturing plant.
It’s important to note that not all buyers will get the tax break, even if they buy a new car this year.
Of the 25 most popular new car models expected to be sold domestically in 2024, 14 are made in the U.S., including the Ford F-Series truck—dominating 2024 sales—as well as the Tesla Model Y, Ram pickup, and Toyota Camry, based on a Bipartisan Policy Center analysis.
If the tax credit had applied to new vehicles purchased in 2024, around 4 million of the 7 million sold among the 25 popular models would have qualified, according to a think tank analysis prior to the IRS’s rule announcement.
Additionally, four out of the 25 best-selling cars were set for final assembly in multiple countries, including the U.S. and at least one other nation.
President Trump first introduced these tax cuts during his campaign in southeastern Michigan, a crucial hub for auto manufacturing. His campaign pledges, including the auto loan interest deduction, have gained traction as the White House seeks to respond to voter concerns about high living costs.
“The administration clearly aims to bolster domestic auto production and consumption,” noted Andrew Lautz, who heads tax policy at the Bipartisan Policy Center. He added that, given various economic challenges, it’s uncertain whether the impact on the auto sector will be positive or negative.
The proposed tax cuts are projected to cost $31 billion over a decade, although individual savings for taxpayers are expected to be modest—likely just a few hundred dollars off of a $50,000 vehicle buy in the first year. The maximum deduction available is $10,000 annually.
Middle-income families are likely to be the primary beneficiaries of this new tax break. However, single taxpayers with incomes over $100,000 and married couples exceeding $200,000 will see the benefit phased out. Low-income individuals, who usually opt for used cars, may not gain as much from these tax incentives.
The proposed rules also broaden the definition of “personal use” for vehicles, another requirement set by the law.
To qualify for the tax benefit, buyers must intend their vehicle to be used personally by themselves or a family member at least half the time when they secure the loan. Interestingly, even if the car’s use transitions to commercial over time, it could still remain eligible for the tax break.
The proposed regulation mandates that lenders collecting at least $600 in annual interest from auto loans submit an information return to the IRS and inform borrowers accordingly. For 2025, lenders can fulfill this requirement by reporting the total interest paid by borrowers during the year.
