Car Loan Tax Deduction: What to Know and How to Claim It

Have you borrowed money to purchase a motor vehicle? Did you know that you can deduct the interest that you paid on that money? It's true. And it's all thanks to a special program that almost anyone can take advantage of. It's called a car loan tax deduction. This unique program allows you to write off as much as $10,000 annually on the interest that you pay on qualified auto loans. This is a tax break you don't want to miss out on.

So, if you've been hoping for financial relief in these difficult times or you simply want more disposable income (which, let's be honest, who doesn't?), then this may be the solution you've been looking for. So, keep reading to see if you qualify for a car loan tax deduction.

American-Made Car Loan Tax Deduction

In short, the American-made car loan tax deduction is simply a deduction on auto loan interest. You are allowed to deduct up to $10,000 a year. Starting now, in 2025, you can deduct on your auto loan interest for new vehicles that are manufactured here in the U.S. The program is valid for the tax years of 2025 to 2028.

The One Big Beautiful Bill

This tax program has been made available as a result of the recently enacted One Big Beautiful Bill (OBBB). As a result, you can take advantage of the benefits it provides within the specified tax-year timeframe.

Who is Eligible for the OBBB Car Loan Tax Deduction?

At this point, you may wonder who is eligible for this car loan tax deduction program. While the program is a unique way to retain more savings, there are a few stipulations regarding who qualifies for the program. Here are the conditions when it comes to who is eligible for the car loan tax deduction:

1. For head of household (or single), and those who are married filing separately, the deduction starts to phase out at the $100,000 MAGI mark. Moreover, it is fully phased out at the cap of $150,000.
2. For married couples that file jointly, the phaseout begins at $200,000 and then will end at $250,000.

Another important consideration to keep in mind is that the deduction will be reduced by $200 for every $1,000 that MAGI (modified adjusted gross income) surpasses the lower threshold. As a result, taxpayers with MAGI that is above the upper limit will not be eligible for the car loan tax deduction.

What Are Your Potential Savings?

As mentioned earlier, the maximum amount of potential savings is $10,000 annually. However, the actual amount that you can save will vary based on a few factors. Some of these variables will include the following:

• Your current tax bracket
• Your interest rate costs
• The amount of the deduction you can use before capping out

Once these factors have been accounted for, given your unique situation, you'll be able to better determine the potential savings that are available to you.

Which Hyundai Vehicles are Eligible?

Remember, only vehicles that are produced and manufactured in America qualify for the car loan tax deduction. With that in mind, you may be curious to know which Hyundai models, in particular, qualify. Here are the models that are eligible for the car loan tax deduction:

• Santa Fe
• Santa Cruz
• Tucson
• IONIQ 5 and 9 (Not available at Hyundai of Saco)

These Hyundai models are eligible for the tax deduction. As a result, as long as you meet the other requirements previously discussed, you can qualify for the program with these Hyundai models.

Questions to Ask Us When Shopping

With everything we've covered so far, you may have wondered what questions you should ask when shopping. Here are some of the questions you should consider when determining a vehicle's tax deduction eligibility.

1. Where was this vehicle manufactured?
2. Does this vehicle come with the "new" classification for tax purposes?
3. Does the VIN qualify for the American-made car loan tax deduction?
4. Can you obtain written documentation regarding its status and manufacturing location?

These questions will help you gain clarity on whether or not the vehicle in question qualifies for the car loan tax deduction program.

Steps to Claim the Car Loan Interest Tax Deduction

If you're interested in taking advantage of the car loan tax deduction, be sure to watch the official IRS website. The IRS has already promised eligible candidates of the car loan tax deductions that further guidance will soon be provided for the 2025 tax year.

Advantages of Utilizing the OBBB Car Loan Tax Deduction

Regardless of the type of tax breaks (credits, exemptions, deductions, etc.), they have the potential to offer numerous possible advantages. What's more, these advantages can cause a ripple effect, impacting individuals, organizations, businesses, and even the economy.

Here are some of the primary advantages of utilizing the OBBB car loan tax deduction:

• More disposable income: This deduction has the potential to reduce the total amount of tax owed; as a result, it can help you realize more potential that would have otherwise been funneled through to Uncle Sam during tax season.
• Financial relief: If you've fallen on hard times financially, the OBBB car loan tax deduction may be able to alleviate some of the pressure.
• Boost in business growth: Are you a business owner or entrepreneur? If so, this tax deduction may possibly be a solution to help you reduce tax liabilities. The result is more capital for you to reinvest into business expansion (researching, hiring, innovation, etc.).

There are numerous advantages when it comes to this tax break. And whether you're an individual or a business owner, this is an opportunity that is worth your time, research, and consideration. So, do your diligence so that you can use this deduction to your advantage.

Car Loan Tax Deduction FAQs

As is to be expected with an opportunity such as this, there will often be many common questions that people will have. For this reason, we're going to cover a few of the questions many people have inquired about regarding the OBBB car loan tax deduction.

What Loan Types Are Eligible?

Unfortunately, you won't be able to qualify with just any type of loan. For example, if you receive a loan from a relative or even a friend, you will not be eligible to deduct any interest you pay to these individuals. This same principle also applies to loans that are taken out for vehicles that you intend for lease financing or to sell for parts. The only loans that are eligible are certain types of qualifying loans.

Case in point? The deduction will apply to new vehicles with loans made and dispensed after December 31, 2024, and only if the car in question was assembled and manufactured within the U.S. Also, remember, these changes will apply to loans that were taken out in 2025 and after, but only for three years, until 2028. The IRS has been very clear on this by noting: "If a qualifying vehicle loan is later refinanced, interest paid on the refinanced amount is generally eligible for the deduction."

Is It Possible to Refinance Later?

You might be able to deduct the interest on a personal vehicle refinance loan. However, that only applies to the amount that you owe when you refinanced, and only if your bank still has that first lien on your vehicle.

What Is the Maximum Annual Deduction?

You will be able to deduct a maximum of $10,000 annually with the car loan tax deduction program.

Does Income Level Influence Eligibility?

Yes, income does influence your eligibility. You will be limited in the amount of your deduction if your MAGI (modified adjusted gross income) surpasses $100,000 (or $200,000 if you are married and filing jointly). As a result, your deduction will be lowered by $200 for every $1,000 your income surpasses the threshold of those MAGIs.

In other words, you won't be able to deduct any interest from any loan at all if your modified adjusted gross income is higher than $149,000 (and $249,000 for those who are married and filing jointly).

Does the EV Tax Credit Also Apply?

Yes, the EV tax credit is also applicable to the OBBB car loan tax deduction.

Speak to a Financing Expert Today

The OBBB car loan tax deduction is a wonderful opportunity to put more of your money back into your pockets. As a result, you should be sure to do your research regarding the steps, qualifications, and nuances of the program to see if you qualify and what the potential rewards will be. And the best part about all of this is that we at Hyundai of Saco in Saco, ME, can help provide some of the answers if you still have questions.

Our automotive financing experts can help clear up any confusion you may be experiencing around this topic. So, if you need some clarification about the OBBB car loan deduction program, contact us today to learn more.