Tax Planning
Deductible Car Loan Interest: How Businesses & Consumers Can Leverage OBBB’s New Opportunity
The One, Big, Beautiful Bill introduces a deduction for car loan interest: here’s who qualifies, what lenders must report, and how to maximize benefits while avoiding missteps.
By NomadicTax Research Team • 5-8 min read • November 17, 2025
## Overview of the Provision
The OBBB allows individuals to **deduct interest on newly purchased passenger vehicle loans** (for personal use) for qualified vehicles assembled in the U.S.—a new deduction in place from **2025 through 2028**. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-act-tax-deductions-for-working-americans-and-seniors?utm_source=openai)) This is not a deduction for lease payments or business-use vehicles. The IRS has issued transition guidance for lenders in 2025. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-provide-transition-relief-for-2025-for-businesses-reporting-car-loan-interest-under-the-one-big-beautiful-bill?utm_source=openai))
## Key Eligibility Criteria
- The loan must be incurred **after December 31, 2024**, for purchase of a **new passenger vehicle** assembled in the U.S. (SUVs, sedans, pick-ups). ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-provide-transition-relief-for-2025-for-businesses-reporting-car-loan-interest-under-the-one-big-beautiful-bill?utm_source=openai))
- Only **personal use** vehicles qualify—not those used primarily for business/commercial purposes.
- Maximum deduction for eligible taxpayers: **$10,000 per year**.
- Phase-outs apply: starts above **$100,000 MAGI** for single, **$200,000 for joint filers**. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-act-tax-deductions-for-working-americans-and-seniors?utm_source=openai))
## What Businesses and Lenders Must Do
- **Information returns** required of lenders/recipients of interest payments (if $600+ in interest in a calendar year).
- IRS relief for **2025**: lenders can meet the informational statement requirement by providing interest totals via online portals, regular statements, annual statements, or similar methods. Penalties will be waived, under Notice 2025-57. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-provide-transition-relief-for-2025-for-businesses-reporting-car-loan-interest-under-the-one-big-beautiful-bill?utm_source=openai))
## Practical Examples
- Jane buys a brand-new U.S.-assembled SUV on a qualifying loan, pays $9,000 interest in 2025: she can deduct the full $9,000 (assuming her MAGI is below phase-out threshold).
- John buys a $50,000 truck assembled in the U.S., pays $11,000 in interest, with a MAGI of $120,000: John’s deduction capped at $10,000.
- For lenders: if they collect $700 in interest from Bob in 2025, rather than issue a full 1098, they may just send Bob a statement or note in his monthly statement, and no penalty in 2025. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-provide-transition-relief-for-2025-for-businesses-reporting-car-loan-interest-under-the-one-big-beautiful-bill?utm_source=openai))
## Strategies & Compliance Tips
- **Document the assembly origin**: certified documentation that vehicle had final assembly in U.S. may be required.
- **Maximize deduction before income phase-out** thresholds. If MAGI expected to bounce near limits, project estimate.
- **Lenders should update systems** to track and report interest payments per borrower for 2026 onward; portal access and statements need to be compliant.
- **Consumers**: retain statements showing interest paid; watch for how your lender communicates the figures.
## Cautions & Edge Cases
- Loans for used vehicles don’t qualify.
- Business-use portion of a vehicle doesn’t get full deduction.
- Joint filers need their MAGI calculated with both spouses’ incomes.
- Uncertainty for vehicles assembled outside U.S.—those do not qualify.
## Bottom Line
This deduction opens a meaningful savings opportunity for many consumers and households—but proper documentation, lender cooperation, and MAGI awareness are essential to ensuring you get full benefit without running into compliance problems.