Entering the final months of the year, the IRS just reminded dealers that some customers may be able to deduct their car loan interest on their taxes.
Driving the news: As part of the Working Families Tax Cuts passed by Congress in 2025, a tax deduction for interest on new vehicle purchases was included.
Eligible vehicles must be finally assembled in the United States.
The deduction phases out for single taxpayers with adjusted gross incomes over $100,000 and for joint filers over $200,000, by $200 for every $1,000 of income over that threshold.
First-year returns: At the end of the tax filing season in May, the IRS reported 1.4 million filers claimed the deduction on their 2025 returns.
The total deduction amount was $2.6 billion.
The car business moves fast. Stay ahead.
The most important insights from automotive retail, delivered to your inbox daily.
Join 74,000 others now, it's free:
Deeper look: The maximum for deductible interest is $10,000, but the real amount paid in interest on a $50,000 loan with a 10% interest rate would be roughly half, at no more than $5,000.
As a deduction, instead of a credit, that interest amount would be subject to the filer’s tax rate, which is 22% for single filers with incomes between $50,401 and $105,700.
At that tax rate, and under this scenario, the deduction would amount to a little more than $1,000.
Bottom line: The deduction is not going to make the final decision on purchasing a vehicle for the consumer with the overall benefit, but it could be worth a mention, being the equivalent of one payment (or more) off their taxes.
A quick word from our partner
Reduce dwell time. Cut transport costs 15–20%. Lower fraud risk.
Auto Hauler Exchange is the only true vehicle logistics marketplace — connecting dealerships directly with 5,500+ vetted carriers nationwide. No brokers. No hidden margins. Full rate transparency. Live ELD tracking. Secure in-platform payments.
Thousands of dealers are already moving cars smarter on AHX.
