If you are thinking about buying a new car, there is a new financial benefit on the horizon that may be worth keeping on your radar.

Starting in the 2025 tax filing year, a new federal law will allow some borrowers to deduct the interest paid on qualifying auto loans – a first for many modern consumers. This change could mean extra savings at tax time, however, like most tax updates, there are a few important details to understand before making decisions. 

What’s Changing?

Under recent legislation, qualifying consumers will be able to deduct up to $10,000 per year in auto loan interest for personal-use vehicles purchased after December 31, 2024. The deduction applies regardless of whether you itemize your taxes, and it runs through 2028.To qualify, vehicles must be new (used cars are not eligible), weigh less than 14,000 pounds, and be assembled in the U.S. Used vehicles and commercial vehicles are not eligible.

Borrowers will also need to report their vehicle identification number (VIN) when filing their taxes, and lenders will be required to submit new IRS forms if you pay more than $600 in interest. Details are still being finalized, and IRS guidance confirms these changes are in motion.

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