Buying A New Car? You May Qualify For A Tax Break Under OBBBA

New Car Loan Interest Deduction Available Under the OBBBA

With the passing of the One Big Beautiful Bill Act (OBBBA), a new tax benefit is on the horizon for individual taxpayers: a temporary deduction for car loan interest. This deduction will be available for tax years beginning after December 31, 2024, and before January 1, 2029—giving taxpayers a limited window to take advantage of this opportunity.

What Qualifies?

To be eligible, the interest must be tied to a car loan that meets the following requirements:

• The loan must be incurred after December 31, 2024.
• The vehicle must be for personal use—not business or leasing purposes.
• The taxpayer must be the original user of the vehicle – used vehicles won’t qualify.
• The debt cannot be owed to a related party.

Vehicle Requirements

Not all vehicles qualify. The deduction applies to new passenger vehicles where original use begins with the taxpayer. Qualifying vehicles must:

• Be designed for use on public roads.
• Have at least two wheels and a gross vehicle weight rating under 14,000 pounds.
• Be assembled in the United States.
• Meet the Clean Air Act’s definition of a motor vehicle.

That includes most cars, SUVs, pickups, minivans, and even motorcycles—provided they meet the criteria above.

Deduction Limits and Phaseouts

Taxpayers can deduct up to $10,000 in interest per year. However, the benefit phases out at higher income levels:

• Phaseout begins at $100,000 MAGI for single filers and $200,000 for joint filers.
• The deduction is completely phased out at $150,000 (single) and $250,000 (joint).

One key advantage: This is an above-the-line deduction, which means you don’t have to itemize to claim it.

Additional Considerations

There are a few important caveats:

• Interest on lease payments does not qualify.
• Refinanced loans are eligible, but only up to the outstanding balance on the original loan. The new loan must also be secured by a first lien on the same vehicle.
• Lenders will be required to file Form 6050AA and provide a copy to the borrower by January 31 of the following year.
• Taxpayers must report the Vehicle Identification Number (VIN) on their return to confirm the vehicle meets U.S. assembly requirements.

Have Questions?

Navigating new tax rules can be complex—but you don’t have to do it alone. If you’re considering a car purchase in the coming years, DWD CPAs & Advisors can help you plan strategically. Contact us today to speak with one of our experienced tax professionals.