New Tax Break Alert: IRS Allows $10,000 Interest Deduction for American-Made Car Loans

In a move to boost the US automotive industry, the Internal Revenue Service (IRS) has introduced a tax break for Americans buying new vehicles assembled in the United States. Starting with the 2025 tax year, taxpayers can deduct up to $10,000 in interest on their car loans, provided the vehicle is purchased through 2028. To qualify, the car must be new and assembled in the US, including passenger cars, SUVs, minivans, vans, pickup trucks, and motorcycles with a gross vehicle weight of less than 14,000 pounds. Buyers can check the vehicle's assembly location using the Vehicle Identification Number (VIN), which typically starts with 1, 4, or 5 for US-assembled cars. The deduction only applies to loans taken out after December 31, 2024, and must be for a personal-use vehicle secured by the car itself. Leased or used vehicles do not qualify. For example, a $50,000 car with a 6% interest rate over five years could result in a deductible interest of around $2,880 in the first year. However, the actual tax savings depend on income levels, with phaseouts starting at $100,000 for individuals and $200,000 for joint filers. To claim the deduction, taxpayers must report the VIN, and lenders must provide statements showing the total interest paid, along with details such as the loan origination date, principal, and a description of the vehicle. From 2026 onward, lenders must issue official tax forms similar to Form 1098. While the deduction offers potential tax savings, experts caution against buying a car solely to benefit from it, as the savings may be modest relative to the total cost of a new vehicle. The IRS is currently accepting public feedback on the proposed regulations through February 2, 2026, as part of the broader One Big Beautiful Bill Act.