New Car Loan Interest Deduction Under the One, Big, Beautiful Bill

Alexey Ravin
Jan 1
3 min read

What Taxpayers Need to Know (2026 Guide)

The Treasury Department and the IRS have released new guidance on a brand-new tax deduction for car loan interest, created under the One, Big, Beautiful Bill.

This provision is often referred to as “No Tax on Car Loan Interest”, but the actual rules are more specific — and not everyone will qualify.

Let’s break down what this new deduction really means, who is eligible, and where taxpayers need to be careful.

What Is the New Car Loan Interest Deduction?

Under the new law, taxpayers may be able to deduct interest paid on certain car loans, even if they take the standard deduction.

This is a major change.

Previously, personal car loan interest was generally not deductible.

When Does This Deduction Apply?

The deduction applies to:

Vehicle loans incurred after December 31, 2024
Interest paid starting in 2025 and forward
New vehicles only
Vehicles assembled in the United States
Vehicles purchased for personal use (not business use)

📌 This is not retroactive for older car loans.

Who Can Claim the Deduction?

According to IRS guidance, eligible taxpayers include:

Individuals purchasing a qualifying new vehicle
Taxpayers who itemize deductions and
Taxpayers who take the standard deduction

📌 This is important:You do not have to itemize to claim this deduction.

The $10,000 Annual Deduction Limit

The deduction is capped at:

✔️ $10,000 per year in deductible car loan interest

This limit applies regardless of:

Vehicle price
Loan size
Filing status

📌 Interest above this limit is not deductible.

What Vehicles Qualify?

The proposed regulations provide rules for determining:

Whether a vehicle is considered new
Whether the final assembly occurred in the United States
Whether the vehicle is purchased for personal (not business) use

This means:

Not every “Made in America” claim will qualify
Documentation will matter

Important Distinction: Personal vs Business Vehicles

This new deduction applies to personal-use vehicles.

If a vehicle is:

Used for business, or
Deducted through mileage or actual expenses,

👉 Different tax rules apply.

📌 You generally cannot double-dip business deductions and this new personal deduction.

What Lenders Need to Know (Why This Matters to Taxpayers)

To claim the deduction, taxpayers will rely on information reported by lenders.

The IRS has clarified:

Which lenders must report qualifying interest
What information must be included
How and when this information must be filed with the IRS and provided to borrowers

📌 If lender reporting is incorrect or incomplete, the deduction may be delayed or denied.

This Is Proposed Guidance — Not Final Yet

Important timing note:

These regulations are proposed
Treasury and IRS are accepting public comments until February 2, 2026
Final rules may include adjustments or clarifications

📌 This means planning should be careful and conservative.

Common Mistakes Taxpayers May Make

We expect to see issues with:

Assuming all car loans qualify
Claiming the deduction for used vehicles
Claiming interest on loans before 2025
Mixing business and personal vehicle deductions
Exceeding the $10,000 limit

This is where professional review matters.

Final Thoughts

The new car loan interest deduction can be valuable — but it is not automatic and not universal.

Key takeaways:

New vehicles only
U.S. assembly required
Personal use only
$10,000 annual cap
Proper lender reporting required

📌 Like many new tax benefits, the details determine the outcome.

📌 Need Help Understanding If You Qualify?

At Bellagio Prime Tax, our IRS-licensed Enrolled Agents help taxpayers:

Determine eligibility under new tax laws
Coordinate deductions with overall tax strategy
Avoid costly mistakes with new provisions

👉 Schedule a tax strategy consultation to review how this new deduction applies to your situation.

Disclaimer

This article is for informational purposes only and does not constitute tax advice.Tax benefits depend on individual facts and circumstances. Proposed regulations may change.

🔗 Official IRS Source

The U.S. Treasury and IRS guidance on the new car loan interest deduction was published in the IRS Newsroom. You can read the full IRS announcement here:

👉 IRS: Treasury, IRS provide guidance on the new deduction for car loan interest under the One, Big, Beautiful Bill: https://www.irs.gov/newsroom/treasury-irs-provide-guidance-on-the-new-deduction-for-car-loan-interest-under-the-one-big-beautiful-bill

This release provides the proposed regulations and eligibility rules related to the new vehicle loan interest deduction under the One, Big, Beautiful Bill (IR-2025-129, Dec. 31, 2025).