2025 Auto Loan Interest Deduction: Key Facts & Eligibility
Overview: The One Big Beautiful Bill Act (OBBBA) adds a new Auto Loan Interest Deduction for tax years 2025–2028. Here's how it works, who qualifies, and how much you can save.
✅ What is it?
It’s an above-the-line deduction — up to $10,000/year of auto loan interest can be deducted even if you take the standard deduction.
📌 Who is eligible?
- MAGI Limits: Full deduction for single filers under $100,000; married filing jointly under $200,000.
- Phase-Out: Deduction reduces by $200 for every $1,000 over the limit — fully phases out at $150,000 (single) or $250,000 (joint).
🚗 Made in America Vehicle Requirement
- Vehicle must be new and final assembly must be in the USA.
- Used cars, salvage title vehicles, fleet purchases, or pure commercial vehicles do not qualify.
- Gross Vehicle Weight Rating (GVWR) must be under 14,000 lbs.
💡 Mixed-Use Vehicles
When your car is used for both business and personal:
- Business-use portion: Deduct interest on Schedule C (regular business expense).
- Personal-use portion: Claim under OBBBA as above-the-line deduction.
⚠️ Beware the Circular AGI Trap
The deduction phases out based on AGI, but it also reduces AGI — creating a circular rule. The IRS is expected to clarify that you must calculate using a pre-deduction AGI.
📅 When does it apply?
This deduction is valid only for 2025–2028. After that, it expires unless extended by new legislation.
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