Bought a car this year? The interest may now be deductible.
The One Big Beautiful Bill Act created a brand-new deduction for auto loan interest — up to $10,000 a year for qualifying new vehicles, through 2028. Here’s who qualifies.
Buried in the One Big Beautiful Bill Act is a break most car buyers have never had: a deduction for interest paid on auto loans. For 2025 through 2028, you can deduct up to $10,000 a year in interest on a loan for a qualifying new vehicle — claimed on the new Schedule 1-A, the same form as the tips, overtime, and senior deductions.
The qualifying rules
- New vehicles only. Used cars don’t count.
- Must be a passenger vehicle with final assembly in the United States.
- Personal use qualifies — it doesn’t have to be a business car.
- Phaseout: modified adjusted gross income over $100,000 ($200,000 for married filing jointly).
The fine print
Like the other OBBBA deductions, this one is temporary — 2025 through 2028 — and it lives on Schedule 1-A, which makes it easy to miss if your preparer or software isn’t looking for it. And it’s a deduction, not a credit: at a 22% marginal rate, a $10,000 interest deduction saves roughly $2,200 in tax. Still real money — just not $10,000 off your bill.
How to claim it
- Keep your loan statements. You need the interest figure — your lender’s year-end statement is the source of truth.
- Prove U.S. assembly. Keep the purchase paperwork showing final assembly in the United States; the VIN plate and window sticker typically show this.
- Look for Schedule 1-A. Like the tips, overtime, and senior deductions, this one lives on the new form — ask your preparer about it by name.
- Stack it. These OBBBA deductions aren’t either/or. A tipped worker who bought a qualifying car can claim both.
One common question: what if the car is also used for business? Business-use interest was already deductible on Schedule C — this new deduction is the first break for the personal-use portion. If your car is mixed-use, keep the two buckets clean and talk to your preparer about the split.
Timing matters, too. The deduction runs 2025–2028 — the loan doesn’t have to be paid off by then, but the deduction window closes. And if your income sits near the $100,000/$200,000 phaseout, a bonus-heavy year could cost you the deduction for that year. As with all four OBBBA deductions, confirm the current IRS guidance before filing — the rules are still being finalized.
The bottom line: if you financed a new U.S.-assembled car in 2025 or 2026, gather your loan statements. The interest is deductible through 2028 — and most filers will need to claim it on Schedule 1-A.
Alex Volkov, CPA is a New York-licensed CPA with over two decades in accounting, focused on resolving IRS tax problems — back taxes, liens, levies, garnishments, and audits — for individuals and businesses nationwide.
New car, new deductions, new questions?
Make sure the new interest deduction actually lands on your return. Ask the question bar — or call free and talk it through with a CPA.
Sources: TheStreet, “Taxes 2025-2026: ‘Big Beautiful Bill’ tax law changes and how they impact you.” Read the guide; Success Knocks, “One Big Beautiful Bill Act Tax Changes: What You Need to Know for 2026 and Beyond.” Read the overview.