You Can Now Deduct Interest on Car Loans
Beginning in 2025, taxpayers may finally get a new break when buying a car — the ability to deduct interest on auto loans for certain vehicles made in the United States. This benefit comes from the One Big Beautiful Bill (BBB) Act, a sweeping update to federal tax law. For the first time in years, Americans can get a tax deduction for the interest they pay on personal vehicle loans — as long as the car meets specific qualifications.
What the New Deduction Allows
If you purchase a new vehicle that was assembled in the U.S., you may be eligible to deduct up to $10,000 per year in auto loan interest. This is significant — until now, personal vehicle loan interest has not been deductible under federal law. You can even claim this deduction without itemizing your taxes — meaning it’s available on top of the standard deduction most taxpayers already take.
Who Qualifies
To qualify for the deduction, your purchase must meet several important conditions:
- The vehicle must be new (first-time use begins with you).
- Final assembly must take place in the United States.
- It must weigh less than 14,000 pounds (most passenger vehicles qualify).
- The loan must be for a purchase, not a lease.
- Your income must be below the phase-out limits — approximately $100,000 for single filers or $150,000 for joint filers.
If you meet these requirements, the deduction applies to the interest you pay each year on your qualifying vehicle loan.
California generally follows federal tax law when it comes to individual deductions. However, the Franchise Tax Board (FTB) must confirm whether it will fully adopt this new vehicle interest deduction for state returns. At All California Accountancy, we’re tracking FTB updates closely and will notify our clients as soon as state conformity is finalized.
For many Californians, a vehicle isn’t a luxury — it’s a necessity. Rising financing costs have made it more expensive to own and operate a car, especially in high-commute areas. This new deduction gives taxpayers a fair opportunity to recover some of those costs, while encouraging the purchase of American-assembled vehicles that support domestic jobs.
Navigating new tax laws can be confusing — especially when the rules are still developing. Our California-based team at All California Accountancy specializes in helping individuals understand new federal and state tax opportunities as they arise.
We can help you:
- Determine if your vehicle qualifies under the BBB Act,
- Calculate your potential deduction,
- Plan your tax strategy for 2025 and beyond, and
- Ensure full compliance with both IRS and FTB regulations.
Disclaimer
This article is for educational purposes only and does not constitute legal, tax, or accounting advice. Consult a qualified CPA regarding your specific situation.
IRS Circular 230 Disclosure: Any U.S. federal tax advice contained herein is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties or promoting, marketing, or recommending any transaction or matter addressed.