Beginning in 2025, a new federal tax deduction allows eligible consumers to reduce their taxable income by deducting interest paid on qualifying auto loans, up to $10,000 per year. This deduction applies to tax years 2025 through 2028 and is intended to make the purchase of new, U.S.-assembled personal vehicles more affordable. We’ve outlined the key guidelines below.
What is the overview of the new bill:
- Individuals may deduct interest paid on a loan used to purchase a qualified vehicle for personal use that meets eligibility criteria.
- Lease payments do not qualify.
- Maximum annual deduction applies.
- Modified adjusted gross income limitations.
What counts as qualified interest?
- A vehicle loan that originated after December 31, 2024.
- Effective tax years 2025-2028.
- The taxpayer is the original lienholder of the vehicle.
- The loan was secured by a lien on the vehicle.
- The loan was for personal use (non-business) vehicles.
- If a qualifying vehicle loan is later refinanced, interest paid on the refinanced amount is generally eligible for the deduction.
What counts as a qualified vehicle?
- A car, minivan, van, SUV, pickup truck, or motorcycle.
- Gross vehicle weight rating of less than 14,000 pounds.
- Underwent final assembly in the United States.
How to verify final assembly, the IRS recommends the following:
- The vehicle label at the dealership.
- The vehicle identification number (VIN).
- The National Highway Traffic Safety Administration, NHTSA VIN Decoder (verify vehicle assembly location).
Please Note: TFCU does not determine whether your loan qualifies for the deduction:
- Confirm whether your vehicle meets IRS requirements (e.g., new, U.S.-assembled).
- Determine your eligibility based on income and tax status.
- Consult with a qualified tax advisor before filing.
If your TFCU vehicle loan meets the eligibility criteria above, you will find the total interest paid in 2025 on your December 2025 monthly statement. In addition, year-to-date (YTD) interest for each loan is displayed within your account details.
For more details, visit the IRS page here, or speak with your tax professional.