8522.3 / What is the temporary deduction for auto loan interest?
The 2025 OBBBA created a new deduction for "qualified passenger vehicle loan interest".[1] The amount of the deduction is limited to $10,000 (not to be adjusted for inflation). The deduction phases out and is reduced by $200 for every $1,000 (or portion thereof) by which the taxpayer's modified adjusted gross income exceeds $100,000 ($200,000 for joint returns).
The deduction applies with respect to new auto loans taken out after December 31, 2024. The loan must be secured by a lien on the vehicle. Refinanced loans qualify, but only to the extent that the amount of the resulting debt does not exceed the original refinanced debt. Only loans of up to 72 months, or six years, qualify. Lease payments similarly do not qualify.
The applicable vehicle must be for personal use and taxpayers must include the vehicle identification number (VIN) on their tax return for the relevant year.
A qualified vehicle is a car, minivan, van, SUV, pick-up truck or motorcycle, with a gross vehicle weight rating of less than 14,000 pounds (RVs, trailers and ATVs are not eligible). Final assembly of the vehicle must have been completed in the United States, and the original use of the vehicle must have commenced with the taxpayer claiming the deduction (meaning that loans to finance purchases of used vehicles do not qualify). The vehicle must also be a personal use vehicle which, according to regulations finalized in 2026, means a vehicle that the taxpayer expects to use for personal purposes more than 50% of the time, determined at the time the loan is issued. Personal use can include personal use by the borrower, their spouse and certain other relatives. The lender can rely on the loan documentation if it establishes personal use and the lender has no conflicting information.
The regulations also offer clarity on when a vehicle is "new" for purposes of the deduction. The vehicle must be classified as new under the relevant loan documentation. The regulations also clarify that a vehicle can still be classified as new if it was used as a demonstrator by the dealer—so long as the vehicle was purchased by the dealer primarily for sale to customers in the ordinary course of its trade or business.
The deduction is available regardless of whether the taxpayer itemizes or takes the standard deduction.
Lenders will be subject to information reporting requirements, though 2025 was treated as a transition year.
The deduction is temporarily available for tax years 2025 through 2028.
[1] IRC § 163(h)(4).