The One Big Beautiful Bill (OBBB) introduced a variety of tax changes, but one of the more surprising provisions is the new U.S. Auto Loan Interest Deduction. For the first time in years, qualifying taxpayers will be able to deduct interest paid on certain auto loans—if they meet the strict eligibility requirements.

At Molen & Associates, we’re here to break down exactly how this works so you can determine if it’s worth factoring into your 2025–2028 vehicle purchase plans.

What the Deduction Covers

Starting in 2025 and continuing through 2028, taxpayers may deduct up to $10,000 per year in interest paid on loans for qualifying vehicles.

To qualify:

• Final assembly must occur in the United States.
• The vehicle must be new at the time of purchase.
• The deduction applies to personal-use vehicles—not just business vehicles.

Income Limits & Phaseouts

The deduction is subject to income-based eligibility:

• Married Filing Jointly: Phases out beginning at $250,000 Modified AGI.
• Single Filers: Phases out beginning at $150,000 Modified AGI.

If your income exceeds these limits, the deduction gradually decreases until it’s fully phased out.

How the Deduction Works

This provision functions similarly to the mortgage interest deduction but applies to your auto loan interest:

• You must be the legal owner of the vehicle and the borrower on the loan.
• Only the interest portion of your loan payment is deductible—principal repayment is not.
• If the vehicle is used partly for business, you must prorate the deduction between personal and business use (business interest can still be deducted under standard mileage or actual expense rules).

Planning Opportunities

For Individuals & Families

If you’re planning to buy a new vehicle in the next few years, choosing a U.S.-assembled model could give you an additional tax break on top of any clean vehicle credits you may qualify for.

For Realtors, Contractors, & Other 1099 Workers

If your vehicle is used for both personal and business purposes, you can combine deductions:

• Deduct business use through the mileage or actual expense method.
• Deduct personal-use loan interest (up to $10,000) if you meet the OBBB criteria.

For High-Income Taxpayers

If your AGI is close to the phaseout threshold, timing your purchase in a lower-income year could help you keep the deduction. Strategic year-end planning—such as deferring income or increasing retirement contributions—can also help maintain eligibility.

Example

A married couple filing jointly purchases a U.S.-assembled SUV in 2025 with a $50,000 loan at 6% interest. In the first year, they pay roughly $2,900 in interest. Since their AGI is $240,000, they qualify for the full deduction.

Their tax savings at a 24% marginal rate would be about $696 for the year—plus potential long-term savings if they deduct interest over multiple years of the loan.

Key Points to Remember

• Applies only 2025–2028—no guarantee it will be extended.
• Vehicle must be new and U.S.-assembled.
• Deduction limit is $10,000 per year in interest.
• Subject to income phaseouts ($150k single, $250k MFJ).
• Personal-use interest deduction is rare—this is a unique opportunity for eligible taxpayers.

Final Takeaway

The U.S. Auto Loan Interest Deduction under the OBBB is a limited-time, targeted benefit designed to encourage purchasing U.S.-assembled vehicles. With proper planning, it can provide meaningful tax savings—especially when combined with other vehicle-related deductions or clean vehicle credits.

If you’re in the market for a new car between 2025 and 2028, it’s worth running the numbers before you buy to see if this deduction could tip the scales toward a U.S.-assembled option.

Want to see how this deduction could fit into your tax strategy?

📖 Read more about the OBBB: molentax.com/obbb-webinar-series/#blogs
 🎓 Attend a free webinar: molentax.com/obbb-webinar-series/#register
 📅 Schedule a 1-on-1 consultation: molentax.com/contact