Choosing to buy a new car over a used one can help cut down on the maintenance costs that often accompany previously-owned vehicles. But new vehicles can also be a lot more expensive to purchase, resulting in hefty loans with high interest rates. To counteract this, new legislation has introduced tax relief designed to make new vehicle ownership more affordable. Keep reading to learn more about the “no tax on car loan interest” provision and how to qualify for the perk.
What is the ‘no tax on car loan interest’ deduction?
As part of the “Big Beautiful Bill” that was signed into law on July 4, 2025, Americans who are buying a new car may be able to get a bit of a tax break. This will be coming in the form of a tax deduction on the interest paid on a new motor vehicle.
A tax deduction is one of the most common types of tax relief and is designed to lower your taxable income. Reducing the portion of income that is subject to tax means you won’t owe as much in taxes.
The new bill offers a number of tax deductions, making this one of many attempts to put more money back in Americans’ pockets. In this particular case, the deduction will be helping those who need to finance their new vehicle, thanks to a tax deduction of up to $10,000 per year for the interest paid on the car loans of qualified vehicles.
Who qualifies for the new vehicle interest deduction?
Though the deduction can ease the burden for many who need to buy a new vehicle, not everyone will be eligible to take advantage. There is an income cap of $100,000 for individuals and $200,000 for couples, so you have to be earning less than that to qualify.
The bill also includes stipulations for the vehicle itself. Here is what it takes to qualify:
- Can only be a car, minivan, van, SUV, pickup truck, or motorcycle
- Weighs less than 14,000 pounds
- Has to be a new vehicle
- For personal use only
- Must meet a “final assembly” in the United States requirement
What cars are eligible based on final assembly rules?
As of now, the “final assembly” criteria for eligible vehicles have not yet been thoroughly explained, but it’s assumed more information will be shared eventually.
“The IRS is expected to create a resource listing qualifying vehicles and models, similar to existing resources for electric vehicle tax credits, to clarify which vehicles meet the final assembly requirement,” automotive expert Lauren Fix told FOX Business. (Note: The documentation on the final assembly location can be provided by the dealership or by looking up the Vehicle Identification Number (VIN) for your vehicle.)
Final assembly refers to the process of automobile manufacturing where major components likethe engine and transmission are installed to complete the assembly of the car. Since this will need to be done within the U.S., many popular imported brands like Hyundai and Nissan likely won’t qualify.
On the other hand, there could be a boost in manufacturing jobs with automobile companies that have significant U.S. production facilities. Honda, Ford and General Motors are just some of the companies that may see a positive impact from the new law.
How long will this deduction last?
If you have purchased a new vehicle after December 31, 2024 using a standard and secure auto loan, you can take advantage of the deduction as long as you and the vehicle meet the above requirements. You will, however, need to provide the VIN when you file your tax return next year.
Thankfully, owners of new vehicles purchased before that date aren’t necessarily out of luck. Kiplinger.com reports that the interest paid on qualifying automobiles will generally be eligible for the deduction if the loan is refinanced. You may not get the full $10,000 if you’ve already started making payments, but you could certainly still see some benefits.
There’s also some good news for anyone who prefers the standard deduction when filing. The law allows eligible Americans to claim the deduction without itemizing.
Unfortunately, the perk of no tax on car loan interest won’t last forever. For now, the changes only apply to loans taken out through 2028. If you’re looking to buy a new car, now might be the right time!
