Ed Yardeni, president of Yardeni Research, discusses the future of tax refunds and the concept of “making money.” This tax season, a new tax reduction is available for individuals taking out auto loans on specific vehicles.
Last year, Republicans pushed the One Big Beautiful Bill Act (OBBBA) through Congress using the reconciliation process, and the president signed it into law. This law includes a provision that permits the deduction of auto loan interest under certain conditions.
The IRS has laid out guidelines for how to apply the “Tax Exemption on Auto Loan Interest” from the OBBBA. This provision is relevant for loans related to new personal vehicles—not for business or commercial ones—that are made in the U.S. after December 31, 2024. Lease payments don’t qualify.
Taxpayers whose auto loans are eligible can deduct as much as $10,000 a year. This benefit is accessible to those who itemize their deductions, as well as those opting for the standard deduction on their tax return.
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The auto loan interest deduction is retroactive for the 2025 tax year for qualifying loans.
The eligibility criteria include income requirements whereby the deduction gradually phases out for high-income taxpayers. Those with a modified adjusted gross income exceeding $100,000 for individuals and $200,000 for married couples will see a reduction in benefits.
Similar to other deductions, the auto loan interest deduction lessens a taxpayer’s taxable income based on interest paid, but it caps at an annual limit of $10,000. Notably, the tax savings might be lower than the nominal deduction amount.
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For the OBBBA auto loan interest deductions, the vehicles must be inspected for final assembly in the USA.
To confirm that a vehicle’s final assembly was in the United States, taxpayers are advised to refer to the dealer’s vehicle label, Vehicle Identification Number (VIN), or the National Highway Traffic Safety Administration’s VIN decoder, which can verify the assembly location.
When filing taxes, taxpayers need to include their vehicle’s VIN to claim this deduction.
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If you refinance your auto loan later, the interest on that refinanced amount is generally tax-deductible as well.
This deduction is applicable retroactively to cover eligible auto loan interest from December 31, 2024, onward.
While OBBBA encompasses various provisions, many of the temporary tax rules will be phased out in a few years to adhere to Congress’ reconciliation guidelines.
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One of these temporary benefits, the auto loan interest deduction, is set to remain in effect until the end of 2028. Efforts are ongoing to prolong its availability.
