New: Car loan interest deduction (OBBBA)
The One Big Beautiful Bill Act (signed July 4, 2025) created a new deduction for car loan interest on personal vehicles, effective 2025 through 2028:
- Deduct up to $10,000/year in interest on a qualifying auto loan
- Vehicle must be new (not used) and assembled in the United States
- Loan must be originated after December 31, 2024
- Must be for personal use (not business vehicles)
- Loan must be secured by a lien on the vehicle
- Lease payments do NOT qualify
The deduction phases out for taxpayers with modified AGI over $100,000 ($200,000 for joint filers). You must include the Vehicle Identification Number (VIN) on your tax return.
Business vehicle deductions
Option 1: Standard mileage rate
70 cents per business mile for 2025, 72.5 cents for 2026. No need to track individual car expenses. Just log your miles.
Option 2: Actual expenses
- Gas and oil
- Insurance
- Repairs and maintenance
- Car loan interest (business-use portion)
- Depreciation
- Registration and taxes
With actual expenses, multiply your total costs by the business-use percentage of the vehicle.
Why principal payments aren't deductible
A car loan payment has two parts: principal (paying back what you borrowed) and interest. Principal is never deductible because you're paying off a debt, not incurring an expense. Only the interest portion has tax benefits.
Leased vehicles
If you lease a car for business, you can deduct the business-use percentage of your lease payments. This is often simpler than tracking depreciation on a purchased vehicle. Note: the IRS has an "inclusion amount" that reduces the deduction for expensive leased vehicles. Lease payments do NOT qualify for the new OBBBA personal vehicle interest deduction.
See IRS Publication 463 (Travel, Gift, and Car Expenses), Chapter 4 for vehicle expense deductions. For the new car loan interest deduction, see IRS Fact Sheet FS-2025-03 (updated July 25, 2025).
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