Yardeni Research President Ed Yardeni discusses tax returns and where the economy is heading to ‘Make Money.’
New tax break is available this filing season to taxpayers with car loans on vehicles that meet certain requirements.
The One Big Beautiful Bill Act (OBBBA), which was passed in Congress by Republicans using the reconciliation process and signed into law last year by the President. Donald Trump, including a provision that allows interest on car loans to be deducted under certain circumstances.
The IRS has issued guidance on the use of the OBBBA’s “No Tax on Car Loan Interest” provision, which applies to loans taken out for the purchase of personal vehicles – not business or commercial vehicles – made in the United States after Dec. 31, 2024. Lease payments are not eligible.
Taxpayers whose car loans qualify for the interest deduction can deduct up to $10,000 a year, and the deduction is available to both taxpayers who itemize deductions and those who claim the standard deduction on their return.
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The auto loan interest deduction resumes in tax year 2025 for qualified auto loans. (Daniel Acker/Bloomberg via Getty Images)
The deduction is less income requirements and exempt categories for high-income taxpayers with adjusted gross income in excess of $100,000 for single filers or $200,000 for joint filers.
Like other tax deductions, the car loan interest deduction reduces taxable income by the amount of interest payments they claim up to a $10,000 annual limit, which means real. tax savings it will be smaller than the normal size of the tax deduction.
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Taxpayers claiming the deduction need to enter their vehicle’s VIN when filing their tax return. (General Motors)
Under the OBBBA, the auto loan interest deduction applies only to used vehicles last meeting in the US
To confirm that the last assembly of the vehicle was in the US, taxpayers are instructed to check one of the following: the vehicle label at the point of sale, the vehicle identification number (VIN) or the VIN Decoder of the National Highway Traffic Safety Administration, which can confirm the last location of the vehicle.
Taxpayers must enter the vehicle’s VIN on their tax return each year for which they claim the deduction.
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New vehicles last assembled in the US are eligible for the deduction. (Emily Elconin/Bloomberg via Getty Images)
If you are eligible car loan refinanced later, the interest paid on the refinanced loan will generally be eligible for deduction.
The deduction applies retroactively to the 2025 tax year, meaning it can be used for qualifying auto loan interest payments earned after Dec. 31, 2024.
OBBBA included the price provisional tax provisions which will sunset after several years to help the bill comply with Congressional reconciliation rules.
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The auto loan interest deduction was one of those temporary provisions, and is scheduled to run until the end of 2028, when it will sunset otherwise. Congress take steps to extend the policy.
