- The finalized rule allows people with a new car loan to deduct up to $10,000 in interest payments annually.
- The rule applies only to loans from the start of 2025 through the end of 2028 on new passenger vehicles with a final assembly in the U.S.
- The finalized rule addressed public comments to the Treasury Department since January.
The IRS and Treasury Department detailed the final ruling on the Car Loan Interest Deduction this week after processing nine months of public comments. The finalized rule allows taxpayers with a new car loan to deduct up to $10,000 in interest payments every year, from the start of 2025 to the end of 2028.
There are many caveats, however.
One of the more contentious points for the applicable passenger vehicle (APV) was if taxpayers with used car loans could qualify for the deduction. They do not.
Types of Qualifying Vehicles
The qualifying deduction applies to interest on car loans for the following:
- New passenger vehicles only with a gross vehicle weight rating under 14,000 pounds.
- A qualifying new vehicle includes a car, minivan, van, sport utility vehicle, motorcycle, or pickup truck — including most heavy-duty pickups. Golf carts and other non-traditional mobility machines are excluded.
- The qualifying vehicle must have final assembly in the U.S. Check your VIN or Monroney label for final assembly info.
- The qualifying vehicle has to be for personal use, not commercial or business purposes, so a commercial van or pickup would not qualify.
Types of Qualifying Loans
This is where it gets complicated. We recommend referencing our detailed explainer on the New Car Loan Interest Deduction here.
- The new car loan must have originated after Dec. 31, 2024, and before Jan. 1, 2029.
- The $10,000 deduction cap applies to all total new car loans within the qualifying timeframe. So, if you have multiple new car loans (lucky you), you can aggregate them until you reach the $10,000 cap.
- Ancillary items included in the financed package, besides just the vehicle, such as extended warranties, sales tax, service plans, and even accessories, can be included as part of the loan and the qualifying deduction.
- If you were underwater or upside down on a trade-in and had negative equity rolled into the new car loan, that amount does not qualify because it is considered a prior purchase.
Limits on Qualifying Incomes
- If your adjusted gross income exceeds $100,000 ($200,000 in the case of a married couple filing a joint return), the deduction is reduced by $200 for each $1,000 (or portion thereof) over the $100,000/$200,000 income threshold.
The regulations go into effect Nov. 9, or 60 days after the open comment period closed and the rule was finalized.
For much, much more info, visit our How to Qualify for the New Car Loan Interest Deduction explainer.
