New IRS Rules for Car Loan Interest Deduction

WASHINGTON — This week, the Internal Revenue Service introduced fresh guidelines for a tax break that enables you to deduct up to $10,000 in interest on auto loans when purchasing a car made in the U.S.

This update means you might be able to lower your tax bill if you’re currently paying interest on your car loan. Specifically, the deduction applies to loans taken out after December 31, 2024, for new vehicles that are assembled in the United States.

Understanding the Car Loan Interest Deduction

If you pay interest on your car loan monthly, you can deduct that amount from your taxes. It’s worth noting that this deduction is limited to new cars, trucks, SUVs, and similar vehicles manufactured in the U.S.

You can claim this deduction regardless of whether you itemize your taxes or opt for the standard deduction. This benefit will be accessible for tax years spanning from 2025 to 2028.

Eligible Vehicles for the Deduction

To qualify, vehicles must meet the following criteria:

• Must be new (never used)
• Must be manufactured in the USA
• Includes cars, minivans, vans, SUVs, pickup trucks, motorcycles, and more
• Must weigh less than 14,000 lbs

Requirements for Loan Qualification

• The car loan must be secured by the vehicle itself (meaning the lender can claim the car if you fail to pay).
• If you refinance your car loan, the interest will continue to qualify, as long as your original loan is still active.
• To take advantage of this deduction, you’ll need to include your Vehicle Identification Number (VIN) when filing your taxes.

Role of the Lender

Your loan provider will send you details regarding the interest paid over the year, similar to the tax documents mortgage companies issue.

In 2025, lenders may provide this information via their website or app. By 2026, you’ll need to submit a formal tax form akin to the Mortgage Interest Form (Form 1098).

Claiming the Deduction

While preparing your taxes, your lender will inform you of the interest amount you incurred during the year. You’ll need this figure when filing your taxes in early 2026 for the 2025 tax year.

Next Steps

The IRS is currently accepting feedback on these new rules until February 2, 2026, via Regulations.gov.

These guidelines aim to assist both you and your lender in preparing for tax filing, especially when the deduction first comes into effect.

For more details, check the IRS website and look for “One, Big, Beautiful Bill Supplies,” or consult a tax professional to see if this deduction could be beneficial for you.