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This year, your auto loan could net you a tax break. A new “above-the-line” deduction, passed into law under the One Big Beautiful Bill Act (OBBBA), allows Americans to write off up to $10,000 in loan interest on qualified vehicles in tax years 2025 through 2028. But not everyone, every vehicle, or every loan qualifies.
Key Takeaways
- A new tax deduction lets you write off up to $10,000 in auto loan interest if, among other things, your vehicle underwent final assembly in the U.S.
- Approximately 60% of all cars manufactured in the first half of 2025 were assembled domestically, according to the American Financial Services Association (AFSA).
- Even well-known foreign automakers, such as Honda, Hyundai, and Toyota, manufacture some models in the U.S.
- Auto loan refinances qualify for the deduction as long as the original car loan did; car leases, however, don’t qualify.
- Despite the $10,000 limit, many consumers are likely to get a tax break of only a few hundred dollars per year.
How Many People Qualify for the Deduction?
The Consumer Financial Protection Bureau (CFPB) estimates that over 25 million auto loans originated in 2024. These loans don’t qualify for the new deduction. Your auto loan must originate after Dec. 31, 2024, and it must meet these requirements:
- The vehicle must be a car, minivan, van, SUV, pick-up truck, or motorcycle weighing less than 14,000 pounds. (A fully equipped Ford F-150 XL, for comparison, weighs less than 6,000 pounds.)
- The vehicle must be for personal use.
- The vehicle must have undergone “final assembly” in the U.S.
- Your lender must furnish interest statements to you and the IRS.
It’s also important to note that the deduction is capped at $10,000, and phases out for individual taxpayers with a modified adjusted gross income (MAGI) of over $100,000 or joint filers with a MAGI of over $200,000.
Many Americans, however, would qualify for the full auto loan interest deduction amount. Based on the latest available data from 2023, the median U.S. household income was $80,610.
How Many Vehicles Qualify for the Deduction?
According to the American Financial Services Association (AFSA), 16.3 million new vehicles were sold in the U.S. during the first half of 2025, with 60% or almost 10 million of those vehicles assembled domestically.
Top brands with multiple cars currently made in America include:
- Acura
- BMW
- Cadillac
- Chevrolet
- Ford
- GMC
- Honda
- Hyundai
- Jeep
- Kia
- Lexus
- Lincoln
- Mercedes-Benz
- Nissan
- Rivian
- Subaru
- Tesla
- Toyota
- Volkswagen
- Volvo
Ivan Drury, director of insights at car research site Edmunds, said shoppers “might be pleasantly surprised” at how many vehicles will qualify for the deduction, though they should also expect variations among car makes, models, and trims. The Ford Bronco, for instance, is finished in Michigan, while the Ford Bronco Sport is finished in Mexico.
“Some models this will apply to,” Drury said. “Some it will not. People will have to do a little bit of homework.”
To determine if a car on the lot is eligible, check its Monroney sticker, which lists, among other things, final assembly location and parts content by country. There are also online tools and websites that help you readily identify domestically made vehicles—just search for the final assembly location of your car.
Important
You can’t claim the auto loan interest rate deduction on leased vehicles, vehicle fleets, scrap-heap vehicles, or salvage vehicles.
Do Refinance Loans Qualify for the Deduction?
The IRS said refinanced loans “generally” qualify if the original vehicle loan qualified for the deduction, though it’s yet to provide more specifics.
Auto loan refinancing demand is currently high, given that the Federal Reserve raised rates steadily between May 2022 and August 2023 and has only lowered them three times since September 2024. According to a TransUnion study from September 2024, 65% of borrowers believe their auto loan payment is a financial strain, and 76% are at least moderately interested in refinancing.
How Much Can You Save?
The more interest you pay on your auto loan, the greater your potential savings. According to Edmunds’ research, the average new car loan in the first half of 2025 was $41,926, with an average annual percentage rate (APR) of 7.2%. If you pay off a loan with these terms in 72 months, you’d spend $9,829.75 in interest, or about $1,638 per year.
Say you’re a single taxpayer making the median annual income of $80,610. If you take the standard deduction of $15,000, you’d pay $9,348 in taxes. However, if you first deduct that $1,638 in auto loan interest, you’d pay $9,045 in taxes, for a savings of $303.
Prior research from Investopedia found that certain consumers could save $224 to $800 a year, depending on their income, filing status, and auto loan APR.
“All things considered, the tax deduction is a win for consumers, but they should not think they’re getting a $10,000 tax break,” said Zach Shefska, president and CEO of CarEdge.
“For many, it will be a few hundred dollars.”
How to Claim the Auto Loan Interest Deduction
Still, a tax deduction is a tax deduction, and if you’re interested in this one, keep an eye on the IRS’ website. The IRS promised further guidance for tax year 2025.
Similar tax breaks, such as the mortgage interest or student loan interest deduction, require loan companies to use Form 1098 to report interest payments to the IRS and borrowers. Borrowers can then use that information to complete their returns.
The bill specifies that you’ll need to provide the vehicle identification number (VIN) on your tax return each year.
Drury cautioned shoppers about selecting a vehicle solely to qualify for the deduction, as some dealers may use it as an incentive to offer less attractive financing offers on eligible vehicles or roll add-ons onto your loan.
“Don’t get fooled,” Drury said. “Dealers that are savvy will use this as a marketing tool.”
Ultimately, you’ll need to crunch the numbers on any offer to see how much you may come out ahead at the dealership and during tax season.
