The IRS Is Giving Car Owners a Major Break for 2026—But Only if Your Vehicle Meets These 5 Rules

A new vehicle loan deduction could save you money on your 2025 taxes.

BY AMAYA NICHOLE, NEWS WRITER

Illustration: Inc; Photo: Getty Images

This tax season, taxpayers who bought a new car in 2025 may be eligible for a new deduction on their auto loan.

The One Big Beautiful Bill Act—also known as the Working Families Tax Cut—that was signed into law in July of 2025, includes hundreds of provisions, from tax legislation to funding for federal agencies. One new update under this act is a tax deduction for interest paid or accrued on vehicle loans for eligible taxpayers for tax years 2025 through 2028.

Here’s what taxpayers should know:

Understand Your Eligibility

Review the criteria to understand  if you meet the qualifications for the deduction, you may be eligible.

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Your vehicle loan originated after December 31, 2024, and is secured by a lien on the vehicle.

Your vehicle is a car, minivan, van, SUV, pick-up truck, or motorcycle with a gross vehicle weight rating of less than 14,000 pounds.

Your vehicle is new and was purchased for personal use.

Your vehicle underwent final assembly in the U.S., as verified through the National Highway Traffic Safety Administration’s VIN lookup tool. If you’re claiming the deduction, you will need your VIN handy for your tax return because buying a vehicle “made in the U.S.” is not the same as simply buying an “American” brand vehicle.

Your vehicle was primarily built for use on public streets, roads, and highways. The IRS generally doesn’t view certain “off-road” vehicles – such as golf carts, race cars, forklifts, riding lawn mowers, and farm tractors – as manufactured for use on public streets, roads and highways. 

Note that the maximum annual deduction is $10,000.

For single tax filers with a modified adjusted gross income—or MAGI—of $100,000 or more, the deduction phases. For a married couple filing jointly, the phaseout begins at $200,000.

However, if you make six figures, you may still be able to benefit. Since the MAGI is calculated after certain deductions from your gross income and the deduction is phased out gradually, if you are close to the cutoff you might still be able to deduct a portion of the interest you paid.

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