Despite the elimination of the federal tax credit for electric vehicles, car buyers still get some tax relief. President Donald Trump’s Big Beautiful Bill includes a provision that allows car buyers to deduct up to $10,000 in “qualified passenger vehicle loan interest,” defined as interest paid or accrued during the taxable year after Dec. 31, 2024, and before Jan. 1, 2029.
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Do you qualify? Here’s what you need to know.
What Is the Car Loan Tax Deduction?
According to the IRS, car buyers may deduct interest paid on a loan used to purchase a qualified vehicle for 2025 through 2028. To qualify, the interest must be paid on a loan that is:
- Originated after December 31, 2024
- Used to purchase a new vehicle, not used
- For personal use, not business or commercial
- Secured by a lien on the vehicle.
The deduction is available to taxpayers who both itemize and take the standard deduction. If the vehicle is later refinanced, interest paid on the refinanced amount will generally still be eligible for the deduction, the IRS noted.
There are income limits as well. The full deduction amount can be claimed only by single taxpayers with a modified adjusted gross income (MAGI) of $100,000 or less, or married couples filing jointly with a MAGI of $200,000 or less.
For those above these thresholds, the amount reduces by $200 for every $1,000 in income above these levels, according to CNN.
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Which Vehicles Qualify?
Not every vehicle qualifies for the deduction.
Based on IRS guidelines, a qualified vehicle is a car, minivan, van, SUV, pickup truck or motorcycle. The gross vehicle weight must be under 14,000 pounds, and the car must have undergone final assembly in the U.S.
Used cars and auto leases do not qualify.
How Much Can It Save You on Taxes?
How much you can save depends on the size of your car loan and whether you fall within the income thresholds for the tax break. Most car buyers can save hundreds of dollars per year on their tax bill, CBS News reported.
Edmunds noted that while the $10,000 write-off might sound like a lot, most buyers do not pay that much in annual auto loan interest. To use the full deduction in the first year of ownership, Edmunds explained that a buyer would need to take out an auto loan of around $112,000 — more than double the average purchase price of a new vehicle, which is around $43,000 in 2025.
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This article originally appeared on GOBankingRates.com: New $10,000 Car Loan Tax Deduction Is Here — Do You Qualify?
