If you’re thinking about buying a new vehicle before the end of the year, 2026 could be the first time in nearly 40 years that your auto loan interest pays you back at tax time.
Thanks to the One Big Beautiful Bill Act (OBBBA), a new deduction for personal vehicle loan interest takes effect with the 2025 tax year — meaning purchases made in 2025 could qualify when you file your return next spring.
This isn’t just a minor tweak; it’s one of the biggest tax shifts for car buyers in decades.
The Return of the Auto Loan Interest Deduction
Under OBBBA, taxpayers may now deduct up to $10,000 per year in interest paid on qualifying auto loans.
Here’s the fine print:
- The deduction applies to new cars, SUVs, vans, pickups, minivans, and motorcycles.
- The vehicle must be assembled in the United States.
- It must have a gross vehicle weight rating under 14,000 pounds.
- The loan must originate after December 31, 2024 and be secured by the vehicle in its first lien position.
- Used cars, leases, and business-use vehicles do not qualify.
Even better — this deduction is available whether or not you itemize deductions.
Income Limits to Keep in Mind
Like most modern tax breaks, this one comes with a phaseout for higher earners.
- Phaseout begins at $100,000 MAGI for single filers or $200,000 for joint filers.
- For every $1,000 above those amounts, the deduction is reduced by $200.
- It phases out entirely around $150,000 (single) or $250,000 (joint).
If your income is near those thresholds, now is the time to plan — adjusting income, timing your purchase, or managing withholdings could help you stay deduction-eligible.
Vehicle Verification & Loan Details
Because this deduction only applies to U.S.-assembled vehicles, buyers should verify assembly details with the manufacturer. The make alone doesn’t guarantee eligibility — even some “American” brands build certain models overseas.
Keep all documentation showing:
✅ Vehicle assembly location and VIN
✅ Loan origination date and lender details
✅ Proof of total interest paid during 2025
Refinanced loans can still qualify if they meet the same criteria, but older or existing loans will not.
How Lenders Will Report Interest
In IRS Notice 2025-57, the agency outlined “transition relief” for 2025 while new lender reporting systems are finalized.
During this transition year, lenders are encouraged — but not yet required — to provide accurate interest totals to borrowers through:
- Online loan portals
- Monthly statements
- Annual interest summaries
Beginning in 2026, lenders will officially report this information to both the IRS and taxpayers using the new Form 1098-VLI (Vehicle Loan Interest Statement).
Quick Checklist for Buyers Before Year-End
If you’re planning to buy a vehicle soon, keep this simple checklist handy:
✅ Confirm the vehicle is new and assembled in the U.S.
✅ Make sure your loan originated after 12/31/2024
✅ Keep all paperwork and interest documentation
✅ Save your VIN and assembly plant info
✅ Talk to your tax professional before year-end if your income is near the limits
If your purchase also qualifies for an electric or hybrid vehicle credit (for models acquired before Sept. 30, 2025), you may be able to combine that credit with this new interest deduction — doubling your potential tax benefit.
Why This Matters Now
This change revives a type of deduction that hasn’t existed for personal-use loans since the 1980s — and it’s temporary, available only for tax years 2025 through 2028.
That means acting soon could give you multiple years of savings before it expires.
It’s also an important reminder that major tax reform like OBBBA isn’t just about brackets and credits — it’s about strategic timing, documentation, and knowing which benefits apply to you.
Sunshine Tax Relief Can Help You Make the Most of It
If you’re planning to buy a vehicle in 2025, we can help you confirm eligibility, estimate your deduction, and make sure you’re ready to claim it correctly when filing next spring.
📞 Call us: (352) 701-1189
