Auto Loan Interest Deduction: Everything You Need to Know
Starting with the 2025 tax year, American car buyers can deduct up to $10,000 of auto loan interest annually on their federal taxes — whether they itemize or take the standard deduction. This is one of the most significant consumer tax changes in decades, created under the One Big Beautiful Bill Act signed into law on July 4, 2025. Here is everything you need to know.
What Is the Auto Loan Interest Deduction?
The auto loan interest deduction is a new federal tax benefit that allows eligible taxpayers to deduct the interest they pay on a qualifying new vehicle loan — up to a maximum of $10,000 per year. It was created by the One Big Beautiful Bill Act (Public Law 119-21), signed on July 4, 2025.
Unlike the mortgage interest deduction, which requires itemizing, this deduction is available to all eligible taxpayers regardless of whether they itemize or take the standard deduction. It is claimed on the new Schedule 1-A attached to your Form 1040.
The deduction applies to tax years 2025, 2026, 2027, and 2028. It does not apply retroactively to vehicle loans incurred before January 1, 2025.
| Detail | Rule |
|---|---|
| Maximum annual deduction | $10,000 |
| Effective tax years | 2025 – 2028 |
| Who can claim it | All eligible taxpayers (standard deduction OR itemizers) |
| Vehicle type required | New vehicles only — no used cars |
| Assembly requirement | Final assembly must occur in the United States |
| Use requirement | Personal use (not business) |
| Income phase-out (single) | MAGI over $100,000 |
| Income phase-out (joint filers) | MAGI over $200,000 |
| Lease payments | ❌ Do NOT qualify |
| Used vehicles | ❌ Do NOT qualify |
| Tax form to use | Schedule 1-A (new form) |
Who Qualifies for the Auto Loan Interest Deduction?
To claim the deduction, a taxpayer must meet all of the following criteria:
- You are an individual U.S. taxpayer (not a corporation or business entity).
- You purchased a brand-new vehicle — original use of the vehicle must begin with you. Used and certified pre-owned vehicles do not qualify.
- The vehicle was purchased for personal use: you or a household member will use it more than 50% of the time for non-business purposes.
- You have an outstanding vehicle loan secured by a first lien on the qualifying vehicle.
- The loan was incurred after December 31, 2024.
- Your modified adjusted gross income (MAGI) is under the applicable phase-out threshold.
- The vehicle meets the U.S. final assembly requirement (see below).
- You include the vehicle's VIN (Vehicle Identification Number) on your tax return when claiming the deduction.
Refinanced loans: If you refinance a qualifying vehicle loan, you may still deduct interest on the refinanced amount, as long as both the original loan and vehicle met all requirements and the new loan is secured by the same vehicle.
Business vehicles: If you are already deducting vehicle loan interest as a business expense on Schedule C, you generally cannot also claim this personal deduction for the same interest payments.
Vehicle Requirements: What Qualifies?
Vehicle Type
The vehicle must be a car, minivan, van, SUV, pickup truck, or motorcycle. Campers and RVs do not qualify under the final enacted law, even if used as a primary residence.
Weight Limit
The vehicle must have a gross vehicle weight rating (GVWR) under 14,000 pounds. Most standard passenger cars, SUVs, and pickup trucks fall well below this limit.
New Vehicles Only
The deduction applies only to new vehicles where the original use begins with the taxpayer. Certified pre-owned, demo, or used vehicles do not qualify.
U.S. Final Assembly Requirement
This is the most important — and most commonly overlooked — requirement. The vehicle must have been finally assembled in the United States. This does not mean the brand must be American; it means the physical final assembly line must be on U.S. soil.
To verify a vehicle's assembly location:
- Locate the vehicle's 17-character VIN (on the dashboard near the windshield or inside the driver's door frame).
- Enter it into the NHTSA VIN Decoder at vpic.nhtsa.dot.gov/decoder.
- Look for the "Plant Country" field — it must say United States.
Quick tip: VINs beginning with 1, 4, or 5 generally indicate U.S. final assembly. VINs beginning with J, K, or other letters typically indicate foreign assembly.
Income Limits and Phase-Out Explained
| Filing Status | Full Deduction (up to $10,000) | Partial Deduction | No Deduction |
|---|---|---|---|
| Single / Head of Household | MAGI ≤ $100,000 | MAGI $100,001–$150,000 | MAGI > $150,000 |
| Married Filing Jointly | MAGI ≤ $200,000 | MAGI $200,001–$250,000 | MAGI > $250,000 |
How the phase-out works: For every $1,000 of MAGI above the threshold, the maximum allowable deduction is reduced by $200. Examples:
- A single filer with MAGI of $120,000 is $20,000 over the limit → deduction reduced by $4,000 → maximum deduction of $6,000.
- A joint filer with MAGI of $225,000 is $25,000 over the limit → deduction reduced by $5,000 → maximum deduction of $5,000.
- A joint filer with MAGI over $250,000 → deduction is eliminated entirely.
What is MAGI? Modified Adjusted Gross Income is generally equal to your Adjusted Gross Income (AGI) on your tax return. For most people, MAGI and AGI are the same number.
How to Claim the Auto Loan Interest Deduction
- Obtain your interest statement from your lender. For 2025, lenders may provide interest totals via online portal, monthly statement, or annual statement. Starting in tax year 2026, lenders will issue a new Form 1098-VLI to borrowers who paid at least $600 of qualifying interest.
- Confirm your vehicle's VIN and U.S. assembly location. Use the NHTSA VIN Decoder. You will need the VIN when completing your return.
- Complete Schedule 1-A. This is the new IRS form created for deductions under the One Big Beautiful Bill Act. Enter the qualifying interest amount and your vehicle's VIN.
- Report the total on Form 1040. The Schedule 1-A total flows to your Form 1040, reducing your taxable income.
- Consult a tax professional. A CPA or enrolled agent can confirm your eligibility and help combine the deduction with other available benefits.
How Much Will You Actually Save?
The deduction reduces your taxable income, not your tax bill dollar-for-dollar. Your actual savings depend on your tax bracket and the amount of loan interest you paid in the year.
| Year | Approx. Interest Paid | Tax Savings (22% bracket) | Tax Savings (24% bracket) |
|---|---|---|---|
| Year 1 | ~$3,900 | ~$858 | ~$936 |
| Year 2 | ~$3,200 | ~$704 | ~$768 |
| Year 3 | ~$2,500 | ~$550 | ~$600 |
| 3-Year Total | ~$9,600 | ~$2,112 | ~$2,304 |
These estimates are based on a standard amortization schedule. Your actual interest paid will vary by loan amount, interest rate, term length, and payment history.
Do INFINITI Vehicles Qualify for the Auto Loan Interest Deduction?
INFINITI vehicles are assembled at multiple global facilities. Whether a specific INFINITI qualifies depends on where that particular vehicle was finally assembled — which can vary by model, model year, and production run.
The easiest way to verify:
- Use the NHTSA VIN Decoder on the specific vehicle you are considering. VINs beginning with 1, 4, or 5 generally indicate U.S. assembly.
- Ask our finance team. At INFINITI of Beachwood, we can confirm the assembly location of any vehicle in our inventory before you purchase. Call (216) 626-7768.
Finance a New INFINITI & Claim the Deduction
Explore our new vehicle inventory and let our finance specialists confirm which models qualify for the auto loan interest deduction before you sign.
Browse New INFINITI Inventory Apply for FinancingFrequently Asked Questions
Is auto loan interest tax deductible?
Yes — starting with the 2025 tax year. Under the One Big Beautiful Bill Act, individuals can deduct up to $10,000 of interest paid on a qualifying new vehicle loan annually. This deduction is available whether you itemize or take the standard deduction.
Does this deduction apply to used cars?
No. The deduction is limited to brand-new vehicles where the original use begins with the taxpayer. Certified pre-owned, used, and demo vehicles do not qualify.
Do lease payments qualify for the auto loan interest deduction?
No. Lease payments do not qualify. The deduction applies only to interest paid on a vehicle loan. If you are weighing leasing vs. financing, this new deduction is a meaningful financial argument in favor of a financed purchase.
Can I claim this deduction if I also take the standard deduction?
Yes. This is one of the most important features of the new law. The auto loan interest deduction is available to all eligible taxpayers, including those who do not itemize deductions.
How long does the auto loan interest deduction last?
The deduction applies to tax years 2025 through 2028 under current law. Loans originated within this window continue to generate deductible interest for the life of the loan, as long as the loan and vehicle otherwise qualify.
What form do I use to claim the auto loan interest deduction?
File Schedule 1-A, a new IRS form for deductions under the One Big Beautiful Bill Act. Totals flow from Schedule 1-A to Form 1040. Beginning in tax year 2026, your lender will provide Form 1098-VLI showing total qualifying interest paid during the year.
Can I still deduct interest if I refinance my car loan?
Generally yes. If both the original loan and vehicle met all requirements and the refinanced loan is secured by a first lien on the same vehicle, interest on the refinanced amount remains deductible up to the outstanding balance at the time of refinancing.
What if my income is above the limit — can I still get a partial deduction?
Yes. The deduction phases out gradually rather than cutting off abruptly. For every $1,000 your MAGI exceeds the threshold, your maximum deduction is reduced by $200. You are still eligible for a partial deduction until your MAGI exceeds $150,000 (single) or $250,000 (joint).
Disclaimer: This page is for informational purposes only and does not constitute tax or legal advice. Tax laws are complex and individual circumstances vary. Always consult a qualified CPA, enrolled agent, or tax attorney before making financial decisions. INFINITI of Beachwood is a vehicle dealer, not a tax professional.