The New Auto Loan Interest Deduction for 2025

Beginning with the 2025 tax year, millions of Americans will encounter one of the most notable tax changes in decades: the new federal Auto Loan Interest Deduction, created under the OBBBA. This new provision offers a potentially valuable deduction for qualifying taxpayers—yet it comes with strict rules, income limits, and a narrow window of eligibility. Here’s a clear breakdown of what this deduction is, who qualifies, and how to make the most of it.

What Is the New Auto Loan Interest Deduction?

The new provision allows eligible taxpayers to deduct up to $10,000 per year in interest paid on qualifying auto loans for new vehicles. The deduction applies to tax years 2025 through 2028 and is available to both standard‑deduction and itemizing filers.

This is an above‑the‑line deduction, meaning it reduces taxable income whether or not you itemize.

Which Vehicles Qualify?

To qualify for the deduction, the vehicle must meet all of the following requirements:

• Brand‑new vehicle (used vehicles do not qualify).
• Final assembly in the United States (verified via the VIN or window sticker).
• Purchased for personal use, not business use.
• Must be a car, SUV, pickup, minivan, van, or motorcycle under 14,000 lbs GVWR.

The final‑assembly requirement will rule out many foreign‑built models — an important detail for buyers to check before assuming eligibility.

Loan Requirements You Must Meet

The vehicle must be financed with a qualifying auto loan, which must:

• Originate after December 31, 2024
• Be secured by a lien on the vehicle
• Be a new loan (refinanced loans do not qualify)
• Be issued by a legitimate lender or dealership
• Include interest actually paid during the year (0% loans qualify only after interest begins accruing)

Income Limits: Who Actually Gets the Benefit?

While marketed as a broadly available deduction, income caps significantly restrict eligibility:

• Phase‑out begins at $100,000 MAGI (single) or $200,000 (joint)
• Deduction reduces by $200 for every $1,000 above the threshold

High‑income households—those most likely to buy new vehicles—may receive little or none of the benefit.

How Much Could This Deduction Save You?

The actual financial impact is modest for most taxpayers. A typical 72‑month new‑car loan at 9.5% APR yields around:

• $3,800 interest in year one → tax savings under $750
• $3,200 interest in year two → tax savings around $640

Because this is a deduction (not a credit), your savings depend on your tax bracket. Still, for many buyers, it’s a welcome offset to high auto‑loan interest rates.

Required Tax Filing Steps

To claim the deduction on your 2025 tax return, you must:

1. Report the vehicle’s VIN on your tax return.
2. Use the new Schedule 1‑A (created for this and other new deductions).
3. Obtain an interest statement from your lender, who is required to report your annual interest paid.

Who Will Benefit Most?

This deduction will be most valuable for:

• Middle‑income households
• Buyers purchasing U.S.‑assembled vehicles
• Those financing at higher interest rates
• Taxpayers who do not itemize but want additional deductions

Those purchasing used cars, leased vehicles, or foreign‑assembled models will not benefit.

The Auto Loan Interest Deduction for 2025 represents a significant, though complex, tax benefit for qualifying car buyers. With clear eligibility rules, income restrictions, and a limited time window, taxpayers must ensure they meet every requirement before counting on the deduction. When used appropriately, this new break can help offset the rising cost of vehicle financing—but it’s not a solution to those rising costs on its own.

If you plan to purchase a qualifying new vehicle between 2025 and 2028, keep good records, verify U.S. final assembly, and review the rules carefully to maximize your potential savings.

If you need guidance that is tailored specifically to your unique situation, we encourage you to connect directly with Pro Advisor Support. Their experienced team specializes in assisting clergy and church organizations with complex tax, payroll, bookkeeping, and HR matters. Whether you have detailed questions about compliance, deductions, or planning strategies, they can provide expert advice and walk you through the next steps with clarity and confidence.

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Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.

This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.

For more information or if you need additional assistance, please use the contact information below.

Clergy Financial Resources
11214 86th Avenue N.
Maple Grove, MN 55369

Tel: (888) 421-0101
Fax: (888) 876-5101
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