Weekly OBBBA Spotlight, Week 5: Car Loan Interest Deduction (2025–2028)

Feb 2
2 min read

OBBBA’s New Car Loan Interest Deduction: A Limited-Time Opportunity

For the first time in decades, OBBBA allows individuals to deduct interest paid on loans for qualifying new vehicles. This provision is aimed at boosting domestic auto sales and providing relief amid rising auto loan costs.

Key Features (2025–2028)

Deduction Limit:
Deduct up to $10,000 per year in interest on loans for new, U.S.-assembled vehicles.
Eligible Vehicles:
The vehicle must be new (no prior title), assembled in the United States, and placed in service after December 31, 2024.
Loan Origination:
The loan must be obtained from a qualified lender on or after January 1, 2025.
Who Can Claim:
Individuals who are listed as owners on both the purchase contract and loan documents. The deduction is per taxpayer, not per vehicle.
Non-Itemizers Eligible:
The deduction is available even if you take the standard deduction.
Phaseout:
Phases out for taxpayers with AGI above $200,000 ($400,000 joint); $100 reduction for every $1,000 over the threshold.
End Date:
The deduction applies to interest paid through December 31, 2028.

Compliance & Documentation

Proof Required:
You must retain the purchase contract, loan documents, and certification of U.S. assembly (typically available from the manufacturer or dealer).
IRS Reporting:
Expect new IRS forms or revised 1098s from lenders for reporting deductible auto loan interest.
Vehicle Use:
Deduction is limited to vehicles used primarily for personal (not business) purposes. Business use may qualify for other deductions under IRC § 162 or § 179.

Planning Tips

Time Your Purchase:
If you plan to purchase a new car, consider doing so between 2025 and 2028 to maximize the deduction.
AGI Management:
If your income is near the phaseout range, review tax planning strategies to preserve eligibility.
Document Early:
Ensure the dealer provides a U.S. assembly statement at purchase; retain all loan and payment records.

What’s Next?

Next week, we’ll explore the expanded and partially refundable child and dependent care credit for 2025, including new eligibility and planning strategies under OBBBA.

For more guidance on the car loan interest deduction or documentation, contact us!