Buying a new car just became a little more tax-friendly.

Under the One Big Beautiful Bill Act (OBBBA), taxpayers may be able to deduct up to $10,000 per year in interest paid on certain loans for new, U.S.-assembled passenger vehicles purchased between 2025 and 2028.

This is an “above-the-line” deduction, meaning you can claim it even if you take the standard deduction. You do not need to itemize — which makes this benefit appealing to many middle-income households.

That said, this is not a simple “deduct your car loan interest” rule. Eligibility depends on the car, the loan, how you use the vehicle, and your income. Because this is a brand-new provision, many taxpayers will need careful analysis — which is exactly where a CPA adds real value.

What is the Vehicle Loan Interest Deduction?

Normally, interest on personal car loans is not deductible. The OBBBA temporarily changes that treatment for a narrow category of loans, called Qualified Passenger Vehicle Loan Interest (QPVLI).

If your loan qualifies, you may deduct up to $10,000 of interest per year on your federal return.

You claim this deduction on Schedule 1-A, Part IV, which will require you to report your vehicle’s VIN — another reason accuracy matters.

This deduction is available to:

• Individual taxpayers

• Decedents’ estates

• Certain non-grantor trusts

It is not available to business entities.

What Loans Qualify?

A CPA will typically walk through three “gates” with you.

1) The loan must be new (after 12/31/2024)

Only debt incurred after December 31, 2024 to purchase a vehicle can qualify.

This matters if you:

• Bought late in 2024

• Refinanced a prior loan

• Traded in one vehicle for another

These situations can create gray areas where professional review is critical. A CPA can trace the original debt and determine whether it falls inside the eligible window.

2) The loan must be secured by the vehicle

The loan must be secured by a first lien on the car — in other words, a standard auto loan where the lender has the primary claim on the vehicle.

If you used:

• An unsecured personal loan,

• A home equity loan, or

• A blended refinancing arrangement,

you may not qualify — even if you bought a brand-new car. A CPA can review your loan documents to confirm whether this requirement is met.

3) The car must be primarily for personal use

At the time you took out the loan, you must reasonably expect to use the vehicle more than 50% for personal purposes.

Family and household driving counts. Heavy business use does not help you qualify.

If you use the vehicle for work (e.g., deliveries, sales calls, rideshare), a CPA can help you analyze and document your usage so you don’t accidentally disqualify the deduction.

What Vehicles Qualify?

Not every new car purchase is eligible.

To qualify, the vehicle must be an “applicable passenger vehicle” under IRS rules and must be:

• New (original use begins with you), and

• Finally assembled in the United States

This is one of the most misunderstood parts of the law. Many taxpayers assume “bought in the U.S.” means “assembled in the U.S.” — but that is not the same thing.

Dealership paperwork, window stickers, and manufacturer documentation may be needed to prove U.S. final assembly. A CPA can help you identify what records you should keep in case of an IRS inquiry.

Income Limits — Where Many Taxpayers Lose the Benefit

Even if your car and loan qualify, your income can reduce or eliminate the deduction.

The benefit begins to phase out above:

• $100,000 MAGI (single filers)

• $200,000 MAGI (married filing jointly)

As income rises, the deduction shrinks quickly.

This is where professional planning can matter. A CPA can:

• Calculate your modified adjusted gross income (MAGI) correctly,

• Show how much of the deduction you are likely to keep, and

• Model whether timing income or deductions could preserve more of the benefit.

Without this analysis, many taxpayers either overclaim (risking an IRS notice) or underclaim (leaving money on the table).

Why a CPA Can Make a Real Difference With This Deduction

Because this is a brand-new, technical provision, the risk of honest mistakes is high. A CPA helps you in several practical ways:

1) Verifying that your vehicle actually qualifies
A CPA can review your purchase documents to confirm the car meets the IRS definition of a U.S.-assembled “applicable passenger vehicle,” including tricky edge cases like replacements or substitutions.

2) Evaluating your loan structure
Only loans secured by a first lien qualify. If your financing involved dealer promotions, later refinancing, or mixed-purpose debt, a CPA can determine whether your interest is truly deductible.

3) Analyzing personal vs. business use
If you use your vehicle for work, a CPA can help you document usage and avoid accidentally crossing the 50% personal-use threshold.

4) Applying the income phase-out correctly
Many taxpayers miscalculate MAGI or misunderstand how fast the deduction disappears. A CPA can run the numbers accurately and prevent overstatements.

5) Preparing Schedule 1-A properly
Because this deduction requires VIN reporting on Schedule 1-A, accuracy matters. A CPA ensures the form is completed correctly and defensibly.

6) Coordinating with the rest of your return
Car loan interest interacts with other income limits, credits, and deductions. A CPA looks at your return as a whole so this new benefit actually helps you rather than creating new problems.

Bottom Line

The new vehicle loan interest deduction is a valuable — but temporary — opportunity for many car buyers from 2025 through 2028. However, eligibility depends on multiple moving parts: the car, the loan, your usage, and your income.

If you financed a new, U.S.-assembled vehicle, a CPA can help you determine whether you qualify, how much you can safely deduct, and what documentation you should retain — giving you both savings and peace of mind.