For the 2025 through 2028 tax years, the OBBB provides a deduction of up to $10,000 for qualified passenger vehicle loan interest paid during a given tax year. The deduction begins to phase out when the taxpayer’s MAGI exceeds $100,000 ($200,000 in the case of a joint return).
Qualified passenger vehicle loan interest means any interest that is paid during the tax year on a debt incurred by the taxpayer after December 31, 2024 (or the later refinancing of such debt) for the purchase of, and that is secured by a first lien on, an “applicable passenger vehicle” for personal use.
“Applicable passenger vehicle” requirements
(1) its original use commences with the taxpayer;
(2) it is a car, minivan, van, sport utility vehicle, pickup truck, or motorcycle;
(3) it was manufactured primarily for use on public streets, roads, and highways;
(4) its final assembly occurred in the United States;
(5) it has a gross vehicle weight rating of less than 14,000 pounds; and
(6) it is treated as a motor vehicle for purposes of Title II of the Clean Air Act.
Interest paid on more than one qualifying vehicle may be used, subject to the $10,000 overall limit.
Taxpayers must include the vehicle’s identification number (VIN) on their tax return to claim the deduction. IRS has granted transitional relief for lenders to report applicable interest amounts for 2025.
This is a “below the line deduction” meaning the deduction affects calculation of tax after limitations affected by AGI. It won’t help a taxpayer qualify for and/or increase the amount of other tax breaks with AGI-based eligibility requirements or phaseouts. This deduction, along with the new deductions for tax on tips, tax on overtime and the enhanced senior deduction will be calculated on the new Schedule 1-A. Of these four new temporary deductions, this is the only one that doesn’t required married taxpayers to file jointly to take the deduction.