Interest on new car loans is now tax deductible up to $10,000—here's how much buyers may actually save

Related StoriesFor the 2025 tax year, eligible U.S. taxpayers can deduct up to $10,000 in auto loan interest under a temporary provision enacted as part of President Donald Trump's One Big Beautiful Bill Act.However, most eligible borrowers will deduct far less, largely because even sizable auto loans don't generate anywhere near $10,000 in interest in a single year. That figure is closer to what borrowers typically pay in total interest over the life of a 72-month new-car loan, per Edmunds, a car-shopping and automotive data company.Instead, for most borrowers, the deduction is more likely to provide tax savings measured in hundreds of dollars a year, not thousands, according to automotive research firm Cox Automotive. Eligibility rules further narrow who can claim the deduction, since it applies only to newly purchased vehicles financed after Dec. 31, 2024, excludes foreign-assembled cars and phases out for higher earners."This tax credit is limited, won't be a market mover and is not a tool to substantially address the affordability challenges and high interest rates our market faces," Jeremy Robb, chief economist at Cox Automotive, tells CNBC Make It.The auto loan interest deduction was a 2024 campaign pledge by Trump, enacted starting July 4, 2025 as part of the One Big Beautiful Bill Act. The deduction itself is temporary and applies only to tax years 2025 through 2028.The deduction applies only to loans that meet the following requirements, per the Internal Revenue Service:The $10,000 maximum deduction phases out at higher income levels. For single filers, the phaseout begins at $100,000 of modified adjusted gross income and ends at $150,000. For married couples filing jointly, the phaseout begins at $200,000 and ends at $250,000, per the IRS.While eligibility is limited by income and vehicle rules, qualifying taxpayers can claim the break whether they itemize deductions or take the standard deduction.Even among those who qualify, few buyers are likely to see their tax bill reduced by anything close to $10,000.A 72-month new-car loan with an interest rate of 9.5% on a $48,000 vehicle and a 12.5% down payment would generate roughly $3,800 in interest in the first year, according to analysis from Cox Automotive. Interest costs fall to about $3,200 in the second year and roughly $2,600 in the third year.While the full amount of interest is deductible, it only reduces the portion of income subject to tax, not taxes owed dollar for dollar. As a result, the actual tax savings are smaller than the interest paid.Assuming a federal tax rate of about 15% to 20% for new-vehicle buyers, the first-year deduction would translate into less than $750 in tax savings, according to Cox Automotive calculations. In the second year, the savings would fall to about $640 as interest costs decline.It would take a loan of roughly $112,000 to generate $10,000 in deductible interest in the first year alone, says Robb.The deduction is claimed on Schedule 1-A, an updated attachment to Form 1040, which tax software will complete automatically for most filers.Taxpayers must include the vehicle identification number, or VIN, on their tax return for any year the deduction is claimed. The VIN is a 17-character number typically visible on the driver's side of the dashboard near the windshield or inside the driver's door frame, and it also appears on vehicle documents such as the title or insurance card. Buyers can use the National Highway Traffic Safety Administration's VIN Decoder, which identifies a vehicle's assembly plant, to confirm whether it was finally assembled in the United States.Lenders must provide borrowers with a statement showing the total amount of interest paid on a qualifying vehicle loan.Want to improve your communication, confidence and success at work? Take CNBC's new online course, Master Your Body Language To Boost Your Influence. Register now and use coupon code EARLYBIRD for an introductory discount of 20% off. Offer valid from Feb. 9 to Feb. 23, 2026. Terms apply.CNBC Select is editorially independent and may earn a commission from affiliate partners on links.Get Make It newsletters delivered to your inboxLearn more about the world of CNBC Make It© 2026 Versant Media, LLC.

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