New Vehicle Interest Tax Deduction: What You Need to Know
If you’re considering buying a new vehicle in 2025 or have recently taken out a loan, there is an important tax change to be aware of. Under the newly enacted One Big Beautiful Bill Act (OBBB), you may be eligible to deduct a portion of the interest you pay on a qualifying auto loan. At Connect Credit Union, our goal is to help you maximize your financial savings and use your vehicle financing as part of a broader strategy for financial wellness.
How the deduction works
Starting in tax year 2025 (for returns filed in 2026), the new law allows eligible taxpayers to deduct up to $10,000 of interest paid annually on a qualified vehicle loan.
Key requirements:
- The loan must have been originated after December 31, 2024, and before January 1, 2029.
- The vehicle must be new, not a used purchase.
- The vehicle must be for personal use (not leased or used for commercial/fleet purposes).
- It must be a car, minivan, van, SUV, pickup truck or motorcycle, with a gross vehicle weight rating (GVWR) of less than 14,000 pounds.
- The vehicle’s final assembly must have occurred in the United States.
- Your income must be within limits: full deduction available when your modified adjusted gross income (MAGI) is $100,000 or less for single filers, and $200,000 or less for joint filers. The deduction phases out thereafter.
Does this apply to electric vehicles (EVs)?
Yes, if the EV meets all of the qualifying criteria above (new, U.S.-assembled, under 14,000 lbs, personal use). There is no separate carve-out or different rate for EVs under this deduction.
Note: Some other federal EV credits (for example under the earlier Inflation Reduction Act) are changing or ending in 2025, so if you plan to buy an EV, you may want to consult your tax advisor to review all applicable benefits.
What savings might you see?
While the cap is $10,000 in eligible interest, most vehicle loans will generate far less interest than that in a year, so your actual tax benefit will be based on how much interest you pay and your tax bracket.
For example: if you paid $4,000 in interest and are in a 24% tax bracket, you might reduce your federal tax bill by around $960 (4,000 × 24%). The $10,000 cap is more likely reached only if you have a very large loan balance.
Because this deduction is an “above-the-line” deduction, you may claim it even if you take the standard deduction (and do not itemize).
Will your lender help you track it?
Yes. Because the law includes new reporting requirements, lenders (including credit unions) will furnish you with a statement showing the interest you paid during the year on a qualifying vehicle loan. For our Members at Connect Credit Union, this information will be included on your End of Year Statement (December Statement). This information will help you claim the deduction correctly.
To stay on top of it:
- Make sure the loan is properly tagged as a “qualified vehicle loan” for tax-reporting purposes.
- Retain documentation: your loan agreement, your vehicle purchase contract, VIN, the vehicle information showing final assembly (e.g., Monroney label or manufacturer declaration).
- When filing your tax return, you will need to include the VIN of the qualifying vehicle.
Why this matters for our members
At Connect Credit Union, our mission is to help you make informed choices that support your financial well-being. This new deduction is an opportunity to reduce your tax burden when financing a new vehicle, one more piece of the broader financial puzzle.
Here’s how to make it count:
- If you are planning a vehicle purchase, ask your loan officer whether the vehicle qualifies under the assembly and weight requirements.
- Factor the interest deduction into your broader vehicle-financing plan. Lower interest, shorter term, or qualifying vehicle may enhance savings.
- Even if your loan interest is modest, the fact that you do not need to itemize to claim this deduction means simpler tax filing for many members.
- For existing vehicle loans or refinance plans, check if the loan qualifies, sometimes a refinance of a qualifying vehicle loan remains eligible for the deduction.
- Always consult a tax advisor if you have questions about your individual situation, especially given income limits and vehicle eligibility criteria.
Important reminders and next steps
- This deduction applies only for loans originated after December 31, 2024 (so tax year 2025 onward) and only through tax year 2028 unless the law is extended.
- Used vehicles, leases, commercial/fleet vehicles, and vehicles assembled abroad do not qualify. Be sure to verify the final assembly location.
- The deduction phases out as income rises above the thresholds (single filers over ~$100k MAGI, joint filers over ~$200k).
- While the savings are meaningful, they are not guaranteed to reduce monthly payments directly. The benefit comes at tax time, so plan accordingly.
Make Your New Car More Affordable, Right Down to Tax Time
Finance or refinance a qualifying new vehicle with Connect Credit Union and take advantage of today’s competitive rates, easy online applications, and potential federal tax savings on the interest you pay.*
Whether you’re buying a new car or refinancing a qualifying loan from another lender, we’re here to help you get more value from your financing.
See New Vehicle Interest Tax Deduction Checklist
*Eligibility for federal tax deductions is determined by IRS guidelines. Connect Credit Union does not provide tax advice. Please consult a qualified tax professional.
Article References:
New Vehicle Interest Tax Deduction Checklist (2025–2028)
Use this quick checklist to see whether your vehicle and auto loan may qualify for the new federal tax deduction.
✔ Vehicle Eligibility
- My vehicle is brand-new (not used or leased).
- I am the first owner.
- The vehicle is for personal use (not business or commercial).
- GVWR (gross vehicle weight) is under 14,000 lbs.
- Final assembly occurred in the United States.
- VIN begins with 1, 4, or 5 OR
- Monroney window label confirms U.S. assembly.
✔ Loan Eligibility
- My loan originated between Jan 1, 2025 and Dec 31, 2028.
- The loan is a first-lien auto loan (no other loans secured by the vehicle).
- I expect to pay at least $600 in interest during the tax year.
- If refinanced, the original loan qualified, and the refinance is for the remaining qualifying balance only.
✔ Income Eligibility
- My income fits within federal limits:
- Single filers: MAGI ≤ $100,000 for full deduction
- Joint filers: MAGI ≤ $200,000 for full deduction
- If above those limits, I understand the deduction may be reduced.
✔ Documentation to Keep
- Purchase contract / buyer's order
- Loan agreement
- VIN, make, model, year
- Monroney label or assembly documentation
- Annual interest-paid statement from lender (for taxes)