The IRS and U.S. Treasury recently issued final regulations implementing the new federal income tax deduction for interest paid on certain passenger vehicle loans.

The new deduction, enacted as part of the One Big Beautiful Bill Act, generally applies for 2025 through 2028 and allows eligible taxpayers to deduct up to $10,000 per year of qualifying vehicle loan interest.

The deduction generally applies to a loan used to purchase a new vehicle for personal use. The loan must generally have been incurred after December 31, 2024, and must be secured by a first lien on the vehicle.

The taxpayer must be the original user of the vehicle, meaning that interest on financing used to purchase a used vehicle generally does not qualify.

The vehicle must also satisfy a U.S. final-assembly requirement. Purchasing a vehicle from a U.S. dealership does not necessarily mean that the vehicle qualifies. Taxpayers should confirm where the vehicle received its final assembly.

Qualifying vehicles may include cars, SUVs, pickup trucks, vans, and motorcycles, provided the applicable requirements are satisfied.

The deduction is limited to the amount of qualifying interest actually paid, up to a maximum of $10,000 per tax return per year. The deduction begins to phase out when modified adjusted gross income exceeds $100,000 for taxpayers other than married taxpayers filing jointly or $200,000 for married taxpayers filing jointly. For a taxpayer otherwise eligible for the full $10,000 deduction, the deduction would generally be completely phased out at $150,000 of modified adjusted gross income, or $250,000 for married taxpayers filing jointly.