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New $10,000 IRS tax deduction: Who qualifies and how to claim it. Details out
New vehicle buyers in 2025 may qualify for a federal tax deduction of up to $10,000 on auto loan interest, subject to income and eligibility rules.
Buying a new vehicle in 2025 could come with an added financial benefit at tax time. Under a provision in the Trump administration’s “One Big Beautiful Bill,” eligible buyers may be able to deduct up to $10,000 in interest paid on certain auto loans from their federal taxes, as long as they meet specific requirements.
Who can claim the deduction?
The deduction applies to interest paid on loans taken out after December 31, 2024 for the purchase of a new vehicle. It is available for tax years 2025 through 2028. Importantly, taxpayers can use this benefit even if they choose the standard deduction instead of listing individual deductions on their tax return.
However, the vehicle must be for personal use. Business or commercial vehicles do not qualify and leased vehicles are not eligible.
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Which vehicles qualify for the tax deduction?
Eligible vehicles include cars, SUVs, vans, trucks and motorcycles that weigh less than 14,000 pounds. The vehicle must also have its final assembly in the United States.
Buyers can verify this information using the National Highway Traffic Safety Administration’s VIN Decoder tool.
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What are the income limits to qualify?
- To qualify for the full deduction, single filers must have taxable income of $100,000 or less.
- Married couples filing jointly must have taxable income of $200,000 or less to receive the full benefit.
- The deduction is gradually reduced for higher earners.
- Single filers earning more than $150,000 are not eligible.
- Married couples filing jointly earning more than $250,000 are not eligible.
Lenders and others who receive qualifying interest payments are required to report the total amount of interest collected during the tax year to the IRS and also send statements to borrowers showing how much interest was paid.
The IRS has stated that it will offer transition relief for the 2025 tax year to those affected by these new reporting rules.
