Trump's fresh auto loan interest tax reduction: Qualifying for a tax break eligibility
New Auto Loan Interest Deduction: What You Need to Know
Starting from 2025 through 2028, eligible taxpayers can deduct up to $10,000 of auto loan interest paid annually on qualifying auto loans [1][2][3]. This tax break is part of the "big beautiful bill" legislation signed into law by President Donald Trump on July 4, 2021.
Who is Eligible?
Eligible taxpayers are those who purchase new, U.S.-assembled personal vehicles after December 31, 2024. The vehicles must be for personal, non-business use, such as cars, motorcycles, SUVs, vans, and pickup trucks. To verify the final assembly location, taxpayers can refer to the vehicle's window sticker or decode the VIN number at the U.S. Department of Transportation website [1][2].
Income limits also apply. Single filers with a modified adjusted gross income (MAGI) of $100,000 or less qualify for the full deduction, while joint filers with a MAGI of $200,000 or less also qualify [2][3][4]. The deduction phases out by $200 for every $1,000 of income above these limits and is eliminated beyond certain thresholds.
Qualifying Criteria
The loan must be for the acquisition of the vehicle, and the loan must be initiated in or after 2025 (loans started before 2025 do not qualify for the deduction in 2025 and later years) [5].
Additional Details
The electric vehicle (EV) tax credit, originally enacted in 2008 and expanded under the Inflation Reduction Act of 2022, will be eliminated after September 30, 2021. The new car loan interest deduction will expire at the end of 2028 unless Congress extends it. The savings from the car loan interest deduction depend on your tax bracket. For example, if you pay $1,200 in interest and are in the 12% tax bracket, you would save $144 from the car loan interest deduction.
It's important to note that the EV tax credit and the car loan interest deduction are separate benefits. The EV tax credit reduces your total tax bill dollar for dollar, while the car loan interest deduction reduces taxable income. The car loan interest deduction is available to both taxpayers who itemize and those who take the standard deduction.
In summary, eligible taxpayers with income below the thresholds purchasing new, U.S.-assembled personal vehicles after December 31, 2024, can deduct up to $10,000 of auto loan interest paid annually on qualifying auto loans during 2025-2028, subject to phase-outs based on income [1][2][3][5]. The deduction begins to phase out by $200 for every $1,000 over the income limits and disappears entirely beyond certain income thresholds. The EV tax credit, on the other hand, will be eliminated after September 30, 2021.
During the years 2025-2028, taxpayers who purchase new, U.S.-assembled personal vehicles after December 31, 2024, and meet the income limits, can potentially finance their purchases using qualifying auto loans and deduct up to $10,000 of the paid interest annually from their taxable income as part of their personal-finance management, given that the loans are initiated in or after 2025. This tax break was established as part of the "big beautiful bill" legislation signed into law by President Donald Trump on July 4, 2021.
