Auto Loan Interest Deduction 2025: Complete Guide for US-Assembled Vehicles
Key Highlights: Auto Loan Interest Deduction 2025
- ✓ Maximum Deduction: Up to $10,000 per year
- ✓ Vehicle Must Be: NEW, US-assembled, personal use, under 14,000 lbs GVWR
- ✓ Phase-Out: Begins at $100,000 MAGI ($200,000 MFJ)
- ✓ Effective: Tax years 2025-2028
Table of Contents
The One Big Beautiful Bill Act (OBBBA) introduced a new incentive for buying American-made vehicles: the Auto Loan Interest Deduction. If you purchase a new, US-assembled vehicle, you can deduct up to $10,000 in auto loan interest from your federal taxable income each year from 2025-2028.
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Calculate My Auto Loan Deduction →1. What Is the Auto Loan Interest Deduction?
The Auto Loan Interest Deduction is a new federal tax break designed to encourage Americans to buy vehicles assembled in the United States. Here's what you need to know:
- Maximum Deduction: Up to $10,000 per year in auto loan interest
- Above-the-Line: Reduces your AGI regardless of whether you itemize or take the standard deduction
- Effective Period: Tax years 2025, 2026, 2027, and 2028
- Purpose: Incentivize purchase of American-assembled vehicles
2. Vehicle Eligibility Requirements
Your vehicle must meet ALL of the following requirements:
✓ Must Be NEW
Original use must begin with you. Used vehicles do not qualify, even if US-assembled.
✓ US-Assembled
Final assembly must occur in the United States. Check the VIN to verify.
✓ Personal Use Only
Vehicle must be for personal use, not business. Business vehicles have separate deductions.
✓ Under 14,000 lbs GVWR
Gross Vehicle Weight Rating must be under 14,000 pounds. Most passenger vehicles qualify.
3. What Does "US-Assembled" Mean?
"US-Assembled" means the vehicle's final assembly occurred at a plant located in the United States. This includes:
- All 50 US states
- Puerto Rico
- US territories
Important: The brand's headquarters doesn't matter. A Toyota assembled in Kentucky qualifies, while a Ford assembled in Mexico does not.
Major US Assembly Plants
| Brand | US Plant Locations |
|---|---|
| Ford | Michigan, Kentucky, Missouri, Ohio, Illinois |
| GM (Chevrolet, GMC, Buick, Cadillac) | Michigan, Ohio, Indiana, Texas, Tennessee |
| Toyota | Kentucky, Indiana, Texas, Mississippi, Alabama |
| Honda | Ohio, Alabama, Indiana |
| Tesla | California (Fremont), Texas (Austin) |
| BMW | South Carolina (Spartanburg) |
| Hyundai/Kia | Alabama, Georgia |
4. How to Verify with Your VIN
The easiest way to verify if your vehicle qualifies is by checking the Vehicle Identification Number (VIN).
Quick VIN Check
The first character of your VIN indicates the country of final assembly:
- 1, 4, or 5 = United States ✓ Qualifies
- 2 = Canada ✗ Does not qualify
- 3 = Mexico ✗ Does not qualify
- J = Japan ✗ Does not qualify
- K = South Korea ✗ Does not qualify
- W = Germany ✗ Does not qualify
🔍 Use Our VIN Verification Tool
Our calculator uses the official NHTSA database to decode your VIN and verify assembly location.
Verify My VIN →5. Which Brands Qualify?
Many vehicles from both American and foreign brands qualify, as long as they're assembled in the US. Here are popular models known to be US-assembled:
American Brands (Many Models)
- Ford: F-150, Mustang, Explorer, Bronco, Edge
- Chevrolet: Silverado, Corvette, Traverse, Blazer
- GMC: Sierra, Yukon, Acadia
- Tesla: Model 3, Model Y, Model S, Model X
- Jeep: Wrangler, Grand Cherokee (some models)
Foreign Brands with US Assembly
- Toyota: Camry, Corolla, Highlander, Tundra, RAV4 (some)
- Honda: Accord, Civic, CR-V, Odyssey, Pilot
- BMW: X3, X4, X5, X6, X7 (Spartanburg, SC)
- Mercedes-Benz: GLE, GLS (Tuscaloosa, AL)
- Hyundai: Santa Fe, Tucson, Elantra (Alabama)
- Kia: Telluride, Sorento, K5 (Georgia)
⚠️ Always Verify with VIN
Even within the same model, some variants may be assembled in different countries. Always verify using the VIN before claiming the deduction.
6. Income Limits and Phase-Outs
The Auto Loan Interest Deduction has income-based limitations:
| Filing Status | Phase-Out Begins | Deduction Eliminated |
|---|---|---|
| Single | $100,000 MAGI | $150,000 MAGI |
| Married Filing Jointly | $200,000 MAGI | $250,000 MAGI |
| Married Filing Separately | $100,000 MAGI | $150,000 MAGI |
| Head of Household | $100,000 MAGI | $150,000 MAGI |
The deduction is reduced by $200 for every $1,000 your MAGI exceeds the threshold. At $150,000 (single) or $250,000 (MFJ), the deduction is fully phased out.
7. How to Calculate Your Deduction
Example Calculation:
Purchased: 2025 Toyota Camry (assembled in Kentucky)
Loan amount: $35,000 @ 6.5% APR
Annual interest paid: $2,275
MAGI: $85,000 (Single)
Vehicle eligible: ✓ Yes (US-assembled, new, personal)
Max deduction: $10,000
Phase-out: None (MAGI below $100,000)
Interest paid: $2,275
Deduction: $2,275 (full interest amount)
Tax Savings (22%): $500.50
8. How to Claim on Your Tax Return
- Get Form 1098-AUTO: Your lender should provide this form showing interest paid (or you can calculate from statements)
- Verify VIN: Confirm your vehicle was US-assembled
- Complete Schedule 1: Enter the deduction on Schedule 1 (Form 1040), Part II
- Keep Documentation: Retain purchase agreement, VIN documentation, and loan statements
9. Frequently Asked Questions
Can I deduct interest on a used car?
No. The vehicle must be new—original use must begin with you. Used vehicles do not qualify regardless of where they were assembled.
What if I paid cash for my vehicle?
This deduction only applies to loan interest. If you paid cash, there's no interest to deduct. However, you might consider other tax benefits.
Can I deduct interest on a leased vehicle?
The IRS is still providing guidance on leases. Generally, leases may qualify if the implicit interest portion can be determined.
Do electric vehicles (EVs) qualify?
Yes, as long as they meet all requirements (new, US-assembled, personal use). Tesla Model 3/Y/S/X made in California or Texas qualify. This is separate from the EV tax credit.
Check Your Vehicle's Eligibility
Enter your VIN to instantly verify if your vehicle qualifies and calculate your deduction.
Verify My Vehicle →Disclaimer: This article is for informational purposes only and does not constitute tax advice. Consult a qualified tax professional for advice specific to your circumstances.