The One Big Beautiful Bill has brought a lot of big changes to the tax code for both businesses and individuals. On the personal tax return side, a change that caught people’s attention was a new threshold for the deduction on personal car loan interest. As with everything involving taxes, things are a bit more complicated than they seem and can be even further complicated by false claims circulating online. Here’s what you need to know about the personal car loan interest deductions.

Included in the One Big Beautiful Bill Act is a temporary provision that allows taxpayers to deduct up to $10,000 of personal car loan interest per year. That number sounds big and shiny but there are a few criteria to meet for eligibility. The provision relates only to new vehicles purchased after December 31st, 2024, and does not include loans for used cars. Cars also must have had final assembly in the United States in order to qualify, so foreign-assembled cars would not be eligible for the deduction. The deductions phase out for higher earners, starting at $100,000 modified adjusted gross income for single filers and ending at $150,000 and starting $200,000 for joint filers and ending at $250,000.

The vehicle also must be for personal use, it cannot be used for business or commercial use. For tax purposes, the two most important pieces of information to know are that the deduction can be taken whether you itemize or not, and is only available for tax years 2025 through 2029. The IRS will require purchase documents, loan agreements and proof of assembly in the US in order to qualify for the deduction. In practice, most people will not qualify for the entire $10,000 deduction per year because most auto loans will not reach that much in interest per year – you would need a loan of roughly $112,000 for that. The interest reduces your taxable income, not taxes owed dollar for dollar, so the tax savings from this deduction are more likely to be in the hundreds or low thousands. However, if you are already in the market for a new car, this is a good deduction to keep in mind.

The One Big Beautiful Bill Act has many temporary tax provisions and deductions that might leave you feeling unsure where to go next with your tax planning or anxious about filing your taxes. A trusted tax advisor can walk you through all the recent tax code changes and find out which deductions make sense for you, as well as helping you file accurately for peace of mind. The personal car loan interest deduction is only available for the 2025-2029 window and only applies to certain vehicles but if you are eligible, it can be another helpful tool to reduce your taxable income. Reach out to a team member at ClarkSilva today if you have any questions!