Bought a New Car in 2025? Here’s a Tax Break You Should Know About

18 hours ago

2 min read

If you purchased a new vehicle in 2025, you may have a new tax deduction available to you that could help lower your taxable income. Starting with 2025 tax returns, taxpayers may be able to deduct up to $10,000 in interest paid on a qualifying car loan. The deduction is available whether you take the standard deduction or itemize your deductions. There are, however, a few important requirements you’ll need to meet.

Who Qualifies?

The vehicle must:

Be new, meaning you are the first person to use the vehicle
Have been purchased after December 31, 2024
Be used primarily for personal purposes
Have final assembly completed in the United States
Have a gross vehicle weight rating of less than 14,000 pounds

Qualifying vehicles can include cars, minivans, vans, SUVs, pickup trucks, and motorcycles.

You'll also need to provide the vehicle's VIN (Vehicle Identification Number) when claiming the deduction.

There Is an Income Limit

Not everyone will qualify for the full $10,000 deduction. The deduction begins to phase out when your modified adjusted gross income (MAGI) is over:

$200,000 for married couples filing jointly
$100,000 for other filers

The deduction completely phases out once MAGI reaches:

$250,000 for married couples filing jointly
$150,000 for other filers

What About Used Cars?

Unfortunately, a used vehicle does not qualify for this deduction. The IRS's final regulations confirmed that the vehicle must be new to the taxpayer. This also means that if you leased a vehicle and later purchased it, you generally won't qualify because the vehicle was already used before you purchased it.

What About Where the Car Was Made?

Another important requirement is that the vehicle's final assembly must take place in the United States. You can generally determine where the vehicle was assembled by checking the vehicle's VIN information or the manufacturer's label on the vehicle.

How Long Will This Deduction Last?

This is a temporary tax break. Under the current law, it applies to tax years 2025 through 2028, unless Congress extends or changes the provision before it expires. The deduction is claimed on Schedule 1-A, along with several other new deductions created by the recent tax law changes.

One More Thing to Keep in Mind

There are also new reporting requirements for lenders that receive $600 or more in qualifying car loan interest from an individual during the year. The IRS provided some relief from this reporting requirement for 2025, but reporting is required beginning in 2026. If you purchased a new vehicle in 2025, make sure you have your loan interest information and VIN available when it's time to prepare your tax return. You may be eligible for a deduction you didn't have in previous years.