OBBBA Auto Loan Interest Deduction: Up to $10,000 Per Year

TLDR

OBBBA created a new federal deduction of up to $10,000 per year for interest paid on a loan to purchase a qualified personal vehicle. This is a real personal-tax deduction for car-loan interest — something not generally allowed since the Tax Reform Act of 1986. Available for tax years 2025-2028 with income phase-outs.

Note: business-use vehicles already deduct interest on Schedule C / business returns; this new deduction is for personal-use vehicles.

In this guide, you’ll learn:

Understand why personal-vehicle loan interest is finally deductible again after 40 years of TCJA-era prohibition
Recognize what counts as a “qualifying vehicle” under OBBBA (and what doesn’t — leases, RVs, HELOC purchases)
Calculate your specific deduction at common loan amounts ($50K, $80K, $150K vehicle)
Understand the difference between personal-use deduction and business-use vehicle interest treatment
See when this deduction is too small to matter (low-rate financing, cash purchase, low-balance loans)

#What’s new about this

Auto loan interest has generally NOT been federally deductible for personal use since the Tax Reform Act of 1986 (which eliminated the personal-interest deduction other than mortgage interest). For business use, interest on a business vehicle has remained deductible as a business expense, but the personal-use side has been a no-deduction zone for 40 years.

OBBBA partially undid this for tax years 2025-2028: up to $10,000 per year of qualifying personal-vehicle loan interest is now federally deductible.

$10,000

Max yearly deduction

Interest on a qualifying loan
2025-2028

Tax years available

Temporary, may sunset after 2028
Personal-use

Vehicle type

Business vehicles already deduct interest

Source: One Big Beautiful Bill Act, auto loan interest deduction provision.

This is a niche deduction with narrow applicability, but for households with substantial auto loans (especially on higher-value vehicles purchased post-2024), it can be a meaningful annual tax savings.

#What qualifies as a “qualifying vehicle”

The vehicle must meet specific conditions (per OBBBA text + IRS guidance):

Personal-use vehicle (passenger car, SUV, light truck, etc.)
Purchased after the effective date (most provisions effective January 1, 2025)
Generally purchased new or used from a dealer/seller (not a transfer between individuals in most cases)
Loan secured by the vehicle (typical auto loan, not a HELOC or personal loan used for vehicle purchase)
Owned by the taxpayer (or co-owned in a qualifying way)

The IRS continues to issue guidance on edge cases (leased vehicles, refinanced vehicle loans, vehicles purchased before 2025 with loans still active).

#What this means for ETS clients

#For ETS clients with personal vehicle loans

If you bought a personal-use vehicle with a loan after January 1, 2025, the interest paid on that loan is now deductible up to $10K/yr. For most ETS clients, this caps at the actual interest paid rather than the limit.

Example calculations:

$50,000 vehicle, 60-month loan at 6.5%, interest paid year-1: ~$3,100. Full amount deductible.
$80,000 vehicle, 72-month loan at 7%, interest paid year-1: ~$5,400. Full amount deductible.
$150,000 vehicle, 60-month loan at 8%, interest paid year-1: ~$11,500. Capped at $10,000.

At a 32% marginal rate, $5,000 of interest deduction = $1,600 of tax savings annually. Real money over the life of the loan.

#For ETS-client business owners with mixed-use vehicles

If your vehicle is used both for business + personal, the analysis is different. Business-use portion: deduct interest as a business expense on Schedule C / 1120-S (already deductible pre-OBBBA, no change). Personal-use portion: now also deductible up to $10K/yr under the new OBBBA provision.

For S-corp owners with an accountable plan reimbursing personal vehicle use, the interest portion of the vehicle reimbursement gets specific treatment under the new rule.

#For ETS clients without auto loans

Buying with cash, or carrying low-interest dealer-financing rates, may make the deduction immaterial. For very low-interest vehicle financing (sub-3% rates available on some new-car deals), the interest amount per year is too small to matter materially.

#Common questions

Does the deduction apply to leased vehicles? Generally no. Lease payments include a financing component but the structure isn’t a traditional loan. The IRS has issued guidance on lease-specific treatment.

Does it apply if I refinance my auto loan? Refinanced loans may qualify if they meet the same conditions (loan secured by the vehicle, used to purchase a qualifying vehicle). The original purchase date matters for whether the vehicle qualifies in the first place.

Can I deduct interest on a HELOC used to buy a car? No — the deduction requires the loan to be secured by the vehicle itself. HELOC interest follows separate rules (typically not deductible unless used for home improvement, post-TCJA).

Does it apply to RVs, boats, or motorcycles? The qualifying-vehicle definition focuses on personal-use automobiles, light trucks, and SUVs. RVs, boats, and motorcycles typically don’t qualify under most interpretations of the rule. IRS guidance continues to evolve.

Is the deduction itemized or above-the-line? The OBBBA worker-and-personal deductions (tips, overtime, auto loan interest, senior deduction) are structured as above-the-line / Schedule 1-A deductions — meaning they reduce AGI rather than requiring itemization. You get the deduction even if you take the standard deduction.

What about the income phase-out? Similar to other OBBBA personal deductions, there’s an income phase-out at higher AGI levels. Exact phase-out parameters per IRS guidance.

Will the deduction be extended beyond 2028? Like the overtime deduction, the auto loan interest deduction is temporary through 2028. Extension is a future legislative question.

If you have a personal vehicle loan and want to ensure the deduction is captured on your 2025 return, the Tax Returns service handles it as part of standard prep. For year-ahead planning around vehicle purchase + loan structuring, the Discovery call is the right starting point.