Southland News
No tax on car loan interest: Understanding the new auto loan interest tax deduction
A new federal tax deduction allows many consumers to reduce their taxable income by deducting interest paid on qualifying car loans. This benefit is effective for tax years 2025 through 2028 and is designed to make the purchase of new, U.S. assembled personal vehicles more affordable. Below is a clear overview of how the deduction works and what borrowers need to know.
How the deduction works
Individuals may deduct interest paid on a loan used to purchase a qualified personal-use vehicle. Lease payments do not qualify. The maximum deduction is $10,000 per year, and the benefit gradually phases out for taxpayers with modified adjusted gross income over $100,000 (or $200,000 for joint filers).
What counts as qualified interest
To qualify, interest must be paid on a loan that meets all the following conditions:
- The loan originates after December 31, 2024.
- The loan is used to purchase a new vehicle, for which the original use begins with the taxpayer. Used vehicles do not qualify.
- The vehicle is for personal use only, not business or commercial use.
- The loan is secured by a lien on the vehicle.
If you refinance a qualifying loan, interest paid on the refinanced principal amount generally remains eligible for the deduction.
What counts as a qualified vehicle
A qualified vehicle must meet both the vehicle type requirement and the final assembly requirement.
Eligible vehicle types include:
- Cars
- Minivans
- Vans
- SUVs
- Pick-up trucks
- Motorcycles
The vehicle must have a gross vehicle weight rating (GVWR) under 14,000 pounds.
Final assembly in the United States:
The vehicle must undergo final assembly in the U.S. How do you know if your vehicle was assembled in the U.S.? This information appears on the vehicle information label at the dealership. You may also confirm the plant of manufacture by checking the VIN:
- Use the National Highway Traffic Safety Administration (NHTSA) VIN Decoder website.
- Follow the site’s instructions to determine whether the vehicle’s assembly plant is in the United States.
How to find your interest paid
If your Southland vehicle loan meets the eligibility criteria above, you will find the total interest paid in 2025 on your December 2025 monthly statement. In addition, year-to-date (YTD) interest for each loan is displayed within your account details.
Always consult your tax professional
Tax situations vary, and this new deduction includes multiple technical requirements. Before claiming the deduction, consult your tax professional to confirm eligibility and to ensure proper reporting.