A borrower financing a new car, truck or SUV in 2025 or later can, for the first time in decades, deduct a portion of the interest paid on that loan from federal taxable income. The break runs through 2028 and caps at $10,000 a year. The catch sits in the fine print the IRS added to its own guidance midstream: the vehicle has to have undergone final assembly inside the United States, a condition that has nothing to do with which brand’s badge is on the hood and everything to do with which factory built the specific vehicle a buyer drives off the lot.
The New Auto-Loan Interest Deduction, Year by Year Through 2028
Under the Working Families Tax Cuts provisions signed into law July 4, 2025, a taxpayer may deduct up to $10,000 a year in qualified passenger vehicle loan interest for tax years 2025 through 2028, according to IRS Fact Sheet FS-2025-03. The deduction is available whether a filer itemizes or takes the standard deduction, and lease payments do not qualify — only interest on an actual purchase loan counts. To qualify, the loan must have originated after Dec. 31, 2024, must be secured by a lien on the vehicle, and must finance a vehicle bought for personal use rather than business or commercial use. If a qualifying loan is later refinanced, interest on the refinanced balance generally remains eligible.
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The “Assembled in the United States” Test That Trips Up Buyers
The vehicle itself has to be new — its original use must start with the taxpayer claiming the deduction, so a used-car purchase does not qualify no matter how the loan is structured. Eligible vehicle types include cars, minivans, vans, SUVs, pickup trucks and motorcycles with a gross vehicle weight rating under 14,000 pounds, and the vehicle must have undergone final assembly in the United States. The IRS says the assembly location will appear on the vehicle information label affixed to the vehicle at the dealership, or a taxpayer can confirm it independently through the National Highway Traffic Safety Administration’s VIN decoder, which reports a vehicle’s plant of manufacture from its vehicle identification number. That distinction matters because plenty of vehicles sold under foreign nameplates are in fact assembled at U.S. plants, while some vehicles sold under American nameplates are assembled abroad — the badge on the vehicle is not a reliable stand-in for where it was actually built.
Income Limits and Who the Deduction Actually Helps
The deduction phases out for filers with modified adjusted gross income above $100,000, or $200,000 for joint filers, according to the IRS fact sheet. That threshold is tighter than the $150,000/$300,000 phase-out that applies to the same law’s “no tax on tips” and “no tax on overtime” deductions, so a household that clears the income limit on one break can still be phased out of this one. A taxpayer claiming the deduction must include the vehicle’s identification number on the tax return for every year the write-off is claimed, and lenders are required to file information returns with the IRS and send borrowers a statement showing the total interest received during the year — documentation a filer will need at tax time regardless of whether a preparer or software handles the actual return.
What Retirees Financing a Car Should Check Before Signing
For an older buyer replacing an aging vehicle on a fixed budget, the deduction can meaningfully offset the interest cost of financing rather than paying cash, but only if the paperwork lines up before the loan is signed. Confirming final assembly location through the window sticker or the NHTSA decoder before completing a purchase avoids the disappointment of financing a vehicle that turns out to be assembled outside the country, since the deduction cannot be claimed retroactively by switching vehicles after the fact. A buyer weighing two comparably priced vehicles from different manufacturers now has a genuine tax reason to check the assembly plant, not just the sticker price and the interest rate, before deciding which one to finance. A retiree who trades in a paid-off car for a new, domestically assembled pickup or SUV and finances the purchase rather than paying cash could realistically deduct a meaningful share of the interest across the four years the provision runs, provided modified adjusted gross income — Social Security benefits, pension income and retirement account withdrawals combined — stays under the $100,000 single or $200,000 joint threshold.
The same law also created the separate $6,000 additional standard deduction for filers 65 and older, which phases out above $75,000 in modified adjusted gross income for single filers and $150,000 for joint filers, according to the IRS fact sheet. That deduction and the auto-loan interest deduction sit on different income scales entirely — a retired couple could clear the $150,000 senior-deduction threshold while still falling under the $200,000 auto-loan phase-out, or the reverse, depending on how the household’s income is structured. A retiree weighing both breaks in the same tax year has reason to run the numbers on each threshold separately rather than assume clearing one means clearing the other.
This article was produced with the assistance of AI and reviewed by The Financial Wire editorial team.
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David M. Keller is a finance writer based in Columbus, Ohio, covering personal finance and consumer-focused economic topics. He earned his degree in journalism from Ohio University and began his career reporting on local business and economic trends for a regional media outlet. Since then, he has contributed to a variety of online publications, focusing on clear, practical coverage of topics such as cost of living, debt, and everyday financial decision-making.
