A $1,095 New Car Deduction? How the 2025 Auto Loan Interest Break Could Sweeten Your Deal
- Heather Boyle
- Oct 10
- 4 min read
Updated: Nov 3
If you’re planning to finance a new car in 2025, here’s a bonus money-saving tip you’ll want to know. Between 2025 and 2028, the federal government will allow specific car buyers to deduct the interest paid on their auto loans. This could mean extra savings on your new car during tax season, although not all cars or buyers will be eligible.
Here’s how to check if your car (and your loan) meet the new rules, how to estimate what you might save, and how to use this new tax break as one more smart strategy instead of falling for a misinformed sales pitch.
Does the Car You Want Qualify?
Before you head to the dealership, you can find out whether the vehicle you want meets the basic qualifications.
To qualify for the new auto loan interest deduction, your car must:
Be new, not used or pre-owned.
Have final assembly in the United States.
Be used for personal, not commercial, purposes.
Be purchased after December 31, 2024.
Be financed with a first-lien loan (the lender holds the vehicle as collateral, so not purchased using a home equity loan, for example).
If your car meets those rules, it may be eligible.
How to check in under a minute if your car, or the one you're interested in, has final assembly in the United States.
Look at the window sticker. The “Final Assembly Point” or "Final Assembly Plant" will list a U.S. city or state.
Use the NHTSA VIN Decoder. Enter the VIN and check the “Plant Information” section. If it lists a U.S. final assembly location, your car qualifies.
Pro tip: You won't just find American car manufacturers on this list. Vehicles such as the Mazda CX50, the Lexus TX, the Toyota Corolla Cross, and the Mercedes-Benz GLE are all final assembled in the U.S, so make sure to check!
How to Know If You Personally Qualify
Even if your car checks out, the deduction depends on your income and the timing of your purchase.
It’s temporary
The new deduction applies for tax years 2025 through 2028 for loans on qualifying new cars purchased after December 31, 2024. After that, unless the law is extended, it expires.
There are income limits
For single filers, the deduction begins to phase out once income exceeds $100,000.
For joint filers, the phase-out starts at $200,000.
For each $1,000 your income goes over the limit, the deduction drops by $200.
Documentation is Required
You’ll need to report your VIN on your tax return.
Your lender will send you an information statement showing how much interest you paid.
How Much Can You Actually Save?
Let’s look at a realistic example.
Example:
Loan amount: $30,000
APR: 6.5%
Term: 60 months
Tax bracket: 22%
Interest Paid Annually:
Year 1 interest: $1,795
Year 2 interest: $1,444
Year 3 interest: $1,069
Year 4 interest: $669
Savings:
2025: $1,795 × 22%= $395
2026: $1,444 × 22%= $318
2027: $1,069 × 22%= $235
2028: $669 × 22%= $147
That’s a total of $1,095 in tax savings over four years and a bonus worth knowing about if you qualify!
The law caps deductions at $10,000 of interest per year, and most borrowers won't reach the maximum.
What to Watch Out For
New incentives like this sometimes create confusion at dealerships, so it’s smart to be informed. A salesperson might tell you, “You’ll get that money back at tax time,” to justify a higher rate or a more expensive car. Don’t fall for that! You might save some money on taxes, and every bit helps when you're making big financial decisions, but you’ll still pay more in interest overall. Here’s what to keep in mind:
Don’t accept a higher rate just because of the deduction. Run the numbers yourself.
Compare total costs under each financing offer before signing.
Do your own research to confirm the car you want qualifies; don't just take the salesperson's word for it.
Smart Car Buying Strategy
The smartest approach is to treat this deduction as a bonus. I wouldn't choose a car solely based on whether it qualifies. But for the savvy shopper, this new rule can be used as a powerful final tie-breaker, serving as a strategic negotiating tool in several key decision points:
New vs. Used: When deciding between a new vehicle and a late-model used one, the deduction is a point in favor of the new car, as only new purchases qualify for the tax benefit.
Purchase vs. Lease: If you are on the fence about leasing versus purchasing, the deduction is an argument for buying, since only financed purchases (not leases) are eligible for the interest deduction.
This Car or That Car: If you are weighing two vehicles and all other factors are nearly equal (price, interest rate, features, etc.), choose the one with Final Assembly in the U.S. to realize the potential tax savings.
Finally, if you already purchased a vehicle in 2025 and qualify for this deduction, go ahead and congratulate yourself; you’ve maximized your potential savings!
The Bottom Line
The auto loan interest deduction is a nice perk, and it feels like a smart secret to know, but it really shouldn't dictate your choices. The goal is still to get the best possible deal on the best possible car for you, not just a deductible one.
Understanding how this rule works helps you make smarter, more confident decisions whether you’re comparing vehicles, interest rates, or loan structures.
If you’re ready to make sure your next car deal is fair, I can help.
Schedule a free consultation and learn how I can help you make confident, informed choices before you buy.
Super Official Disclaimer
I am not a licensed accountant or financial professional. This information is provided for educational purposes only and should not be considered financial or tax advice. Always consult a qualified tax professional before claiming deductions or making financial decisions.
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