July 24, 2025
We have gotten a few questions about the newly enacted auto loan interest tax deduction as part of the "One Big Beautiful Bill." Here's some guidance on how it should be incorporated and advertised, but as always, consult your legal team before moving forward.
Key facts:
- The new law applies only to new loans originated after December 31, 2024.
- The deduction is available only for tax years 2025 through 2028 and is capped at $10,000 per year.
- It phases out for taxpayers with modified adjusted gross income over $100,000 ($200,000 for joint filers) and fully phases out at $149,001 ($249,001 for joint filers).
- In order to qualify, the vehicle must:
- Be a new car, minivan, van, SUV, pickup truck, or motorcycle. Used vehicles are ineligible.
- Have a gross vehicle weight under 14,000 pounds.
- Have final assembly occur in the United States
- Be purchased, not leased.
- Be for personal use only—no business or commercial use.
Dealers should be aware of several important issues:
- There are limits on the deduction, most importantly those related to both vehicle assembly and purchaser income. Here is a link to the IRS information: One Big Beautiful Bill Act: Tax deductions for working Americans and seniors | Internal Revenue Service
- Dealers should be careful about how the tax deduction is advertised. Because of the limits described above, it is important that dealers avoid statements about the availability of the deduction to their customer that could be misleading.
Do not say things like:
- “No tax on car loan interest!”
- “Deduct all your interest!”
- “Everyone qualifies!”
Instead, statements like the following should be considered:
- “Interest on new car loans may be tax-deductible if you qualify.”
- “New US-assembled vehicles may qualify for a federal interest deduction.”
Dealers should be careful not to give tax advice to customers and instead give customers factual information about whether a vehicle qualifies or pointing out the part of a payment that is loan interest if asked.
Questions? Email VADA's Anne Gambardella, our General Counsel and Executive Vice President.