What is the Car Loan Interest Deduction?
The One, Big, Beautiful Bill Act creates a new deduction — called Qualified Passenger Vehicle Loan Interest (QPVLI) — that lets taxpayers deduct interest paid on certain vehicle loans for personal use. This deduction is available whether you itemize or take the standard deduction. (irs.gov)
Key Requirements
- The vehicle must be purchased after December 31, 2024 and have undergone final assembly in the United States. (irs.gov)
- Only interest on loans fully secured by a first lien qualifies; lease payments do not. (irs.gov)
- The vehicle must be primarily for personal, non-business use, and not exceed a gross vehicle weight rating (GVWR) limit (e.g. under 14,000 pounds). (irs.gov)
Limits and Phase-Outs
- Maximum deduction is $10,000 per year. (irs.gov)
- Phases out for taxpayers with Modified Adjusted Gross Income (MAGI) over $100,000 for singles and $200,000 for joint filers. (irs.gov)
- You must include the Vehicle Identification Number (VIN) on your tax return for years you claim this deduction. (irs.gov)
Reporting Requirements & Proposed Rules
For borrowers and for lenders/interest recipients:
- Lenders receiving $600 or more in interest from any individual must file an information return under §6050AA and furnish a payee statement. (irs.gov)
- Notice of Proposed Rulemaking REG-113515-25 was issued, including public hearing and comment periods before final rules are adopted. (irs.gov)
Practical Examples
| Scenario | Single Filer, MAGI $90,000 | Joint Filer, MAGI $210,000 |
|---|---|---|
| Purchased eligible U.S.-assembled SUV financed after Dec 31, 2024; $800 in annual interest | Can deduct full $800 because under cap & MAGI below threshold | Phase-out applies; may have no deduction if MAGI above $200,000 but interest only $800 — still might qualify partly depending on final rules |
| Bought vehicle assembled abroad | No deduction allowed regardless of interest paid or income |
Actionable Tips for Tax Planning
- Before purchasing a car, verify its final assembly location via dealership documents or NHTSA VIN decoder. That determines eligibility.
- If MAGI is near the threshold, plan income timing or pairing with deductions to stay below or manage phase-out.
- Keep detailed records of interest statements from lenders and your VIN documentation.