This bill temporarily allows taxpayers to deduct interest paid on certain loans for US-made passenger vehicles, subject to dollar and income limitations, and introduces new reporting requirements for lenders.
Mike Kelly
Representative
PA-16
This bill temporarily amends the Internal Revenue Code to allow taxpayers to deduct interest paid on qualified loans taken out to purchase certain passenger vehicles made in the United States. This deduction is available for a limited time, subject to an annual cap of \$10,000 and income phase-outs. The legislation also imposes new information reporting requirements on lenders receiving \$600 or more in interest on these specific vehicle loans.
New Bill Offers Temporary Tax Deduction on Car Loan Interest, But Only for U.S.-Assembled Vehicles
If you’re planning to buy a car between 2025 and 2028, listen up. This new legislation is trying to bring back a tax break that hasn’t existed for personal car loans in decades, but it comes with some serious strings attached and a very short expiration date. The bill temporarily amends the Internal Revenue Code to allow taxpayers to deduct interest paid on loans used to purchase a personal vehicle, but only for tax years 2025, 2026, 2027, and 2028.
The $10,000 Tax Break With a Catch
Starting January 1, 2025, interest paid on a new car loan won't be treated as non-deductible personal interest anymore—if the loan is secured by a first lien on an “applicable passenger vehicle.” The biggest catch? That vehicle must have had its final assembly in the United States. So, if you’re financing a new truck, SUV, or even a trailer for personal use, you might be able to write off the interest you pay. However, the deduction is capped at $10,000 per year. This benefit is designed to be temporary, meaning that come January 1, 2029, this deduction goes away, making tax planning tricky for anyone financing a vehicle over a standard five- or six-year term.
Who Gets to Take the Deduction (and Who Doesn't)
This benefit is clearly aimed at middle and upper-middle income earners, and it has some hard limits. If your Modified Adjusted Gross Income (MAGI) is over $100,000, the deduction starts to shrink. For every $1,000 you earn over that threshold, your available deduction drops by $200. This structure means that high earners will quickly lose the benefit, but for a family making $90,000 a year, this could be a significant savings, especially since you don’t have to itemize to claim it. Crucially, the bill explicitly excludes interest on leased vehicles, fleet sales, and any vehicle not assembled domestically. If you prefer to lease your car or buy a model assembled overseas, this tax break is a non-starter.
New Paperwork for Lenders and the IRS
While consumers get a potential break, the financial industry gets a new compliance headache. The bill introduces mandatory reporting requirements for any lender who receives $600 or more in interest from a qualified vehicle loan in a calendar year. Lenders will now have to report detailed information to the IRS—and to you—including the loan origination date, the outstanding principal, and the vehicle’s year, make, and model. This means the IRS will have a much clearer picture of who is financing what, which increases the administrative burden on banks and credit unions, and makes the whole system more transparent to the taxman. For the rest of us, it means another piece of tax paperwork to track starting in 2026.