The U.S. Department of the Treasury and the Internal Revenue Service have issued formal guidance implementing President Donald Trump’s “No Tax on Car Loan Interest” provision under the One, Big, Beautiful Bill Act, creating a new federal tax deduction for interest paid on qualifying auto loans.
Under the policy, eligible taxpayers may deduct up to $10,000 per year in interest paid on loans used to purchase new, U.S.-assembled vehicles for personal use. The deduction applies whether a taxpayer itemizes deductions or takes the standard deduction.
To qualify, the loan must be used to purchase a new passenger vehicle — including cars, SUVs, vans, pickup trucks, and motorcycles weighing under 14,000 pounds — and the vehicle’s final assembly must occur in the United States. Used vehicles, lease financing, fleet purchases, and vehicles purchased primarily for business or commercial use are excluded.
Treasury and IRS guidance clarifies that a vehicle qualifies as being purchased for personal use if, at the time the loan is incurred, the taxpayer reasonably expects the vehicle to be used primarily for personal purposes. Once that standard is met, taxpayers are not required to re-evaluate usage in later years.
The deduction is capped at $10,000 per tax return per year, regardless of filing status, and phases out for higher-income taxpayers. The allowable amount is reduced as income rises above $100,000 for single filers and $200,000 for joint filers.
Taxpayers claiming the deduction must report the vehicle’s identification number (VIN) on their federal tax return. Lenders receiving at least $600 in interest on a qualifying loan are required to provide borrowers with annual statements summarizing interest paid.
The auto loan interest deduction applies to qualifying loans incurred after December 31, 2024, and is scheduled to remain in effect through the 2028 tax year unless extended by Congress.
