A new provision under the One Big Beautiful Bill Act (OBBBA) may allow taxpayers to claim a car loan interest tax deduction for qualifying vehicle purchases made during tax years 2025 through 2028.
That sounds straightforward—but like most tax law updates, eligibility depends on very specific rules. Not every vehicle qualifies, not every loan qualifies, and income limits may affect whether the deduction is available.
Below is a clear breakdown of how it works, who should pay attention, and how to check whether a vehicle may qualify.
What Is the Car Loan Interest Deduction?
Under this provision, qualifying taxpayers may be able to deduct up to $10,000 per year of interest paid on a qualifying auto loan, even if they don’t itemize deductions.
This deduction is temporary and only applies to eligible loans and eligible vehicles during the 2025–2028 window.
Key Requirements to Qualify
To claim the deduction, the vehicle and the loan generally must meet all of the following:
- Vehicle must be NEW (used vehicles do not qualify)
- Final assembly must occur in the United States
- Vehicle must be for personal use (commercial, fleet, and lease vehicles generally do not qualify)
- Gross Vehicle Weight Rating (GVWR) must be under 14,000 lbs
- Loan must be a first lien on the vehicle
- VIN must be reported on the tax return
- Income phase-outs may apply, depending on filing status and total income
If even one of these requirements isn’t met, the deduction may be reduced or unavailable.
Income Limits and Phase-Outs
This deduction is not designed as an unlimited benefit for every buyer. Higher-income taxpayers may see the deduction reduced or phased out entirely based on income thresholds and filing status.
Because phase-out rules can impact planning (especially for households with variable income), it’s smart to evaluate your tax picture before relying on the deduction when making a vehicle purchase.
Business Owners: Don’t Assume This Is Your Best Strategy
If the vehicle will be used for business, the “best” tax approach may look different.
Depending on the facts, business owners may benefit more from other strategies such as:
- Section 179 expensing
- Bonus depreciation (if available during the year placed in service)
- Standard mileage deduction
- Actual expense method
The best path depends on how the vehicle is used, what type of vehicle it is, and how your overall tax return is structured.
Qualifying Vehicles (By Manufacturer)
Instead of listing every vehicle model in a long scrolling format, we’ve organized qualifying vehicles into a click-to-expand list below.
Important: Eligibility can change if manufacturers shift assembly locations during a model year. Always verify final assembly using the VIN before purchase.
Qualifying Vehicles by Manufacturer (Click to Expand)
Vehicle eligibility depends on final U.S. assembly and compliance at the time of purchase. Always verify using the VIN before relying on the deduction.
Acura
- Integra
- MDX
- RDX
- TLX
Audi
- Q5
- SQ5
BMW
- X3
- X4
- X5
- X6
- X7
Cadillac
- CT4
- CT5
- Escalade
- Escalade ESV
Chevrolet
- Blazer
- Camaro
- Colorado
- Corvette
- Malibu
- Silverado 1500
- Suburban
- Tahoe
Ford
- Bronco
- Escape
- Explorer
- F-150
- Mustang
- Ranger
GMC
- Canyon
- Sierra 1500
- Yukon
- Yukon XL
Honda
- Accord
- Civic
- Passport
- Pilot
- Ridgeline
Hyundai
- Santa Cruz
- Santa Fe
- Sonata
Jeep
- Cherokee
- Compass
- Gladiator
- Grand Cherokee
- Wrangler
Kia
- EV6
- Sorento
Lexus
- ES
- TX
Nissan
- Altima
- Pathfinder
- Rogue
Subaru
- Legacy
- Outback
Tesla
- Model 3
- Model X
- Model Y
Toyota
- Camry
- Corolla
- Highlander
- Tacoma
- Tundra
What Does NOT Qualify?
In most cases, the deduction will not apply to:
- Used vehicles
- Leased vehicles
- Vehicles assembled outside the U.S.
- Commercial or fleet vehicles
- Loans that are not first-lien
- Vehicles over the GVWR threshold
How to Protect Yourself Before You Buy
If you’re purchasing a vehicle during 2025–2028 and want to plan around this deduction:
- Confirm the vehicle is new and U.S.-assembled
- Verify it meets the weight limit
- Make sure the loan is structured as a first lien
- Save documentation showing interest paid
- Keep the VIN available for tax reporting
- Review whether your income may trigger a phase-out
Final Thoughts
The OBBBA car loan interest deduction may offer meaningful savings for qualifying taxpayers, but it’s not automatic—and it’s not the same for every buyer.
Before relying on it, confirm eligibility and consider how the vehicle purchase fits into your overall tax picture.
At Rae’s Accounting, we stay on top of tax law changes and help clients understand what’s actionable, what’s not, and what planning steps can make the biggest difference.