If you’ve been in the market for a new car, there’s a financial opportunity ahead that could make your purchase more affordable! Beginning with the 2025 tax year, a new federal law will allow eligible borrowers to deduct interest paid on certain auto loans. This change could help put more money back in your pocket at tax time, but as with any tax change, there are important details to weigh before making any decisions.
Whats New?
Recent legislation allows qualifying borrowers to deduct up to $10,000 per year in auto loan interest for new, personal-use vehicles purchased after December 31, 2024. This deduction is available whether or not you itemize your taxes and will be in effect through 2028.
To understand if your purchase qualifies for this deduction, remember that the vehicle must be brand new, weigh less than 14,000 pounds, and be assembled in the United States. Used cars and those intended for commercial use are not eligible. Borrowers will be required to include the vehicle identification number (VIN) on their tax return, which helps confirm the vehicle's eligibility. Additionally, if you pay more than $600 in auto loan interest in a given year, your lender must file a new IRS form on your behalf. These requirements ensure proper tracking and compliance with the updated law. As guidance from the IRS evolves, stay informed about any additional details that may impact your eligibility.
Eligibility Based on Income
It’s important to understand the income requirements associated with this deduction. To qualify for the full benefit, your modified adjusted gross income (MAGI) must be under $100,000 if you file taxes as a single individual, or under $200,000 for joint filers.
Let’s consider what this means for potential savings. While the deduction allows up to $10,000 per year in auto loan interest, most borrowers pay significantly less than this in annual interest. As a result, your personal savings might range from a few hundred to over a thousand dollars, depending on the amount of your loan and the interest rate. For many families working to manage expenses, this deduction could provide valuable relief come tax time.
Other Key Policy Updates
As you look ahead with your financial planning, it’s also helpful to be aware of additional policy changes that may impact your household budget. Staying informed allows you to make proactive decisions and avoid unexpected challenges. For example, interest payments on federal student loans began accruing again on August 1, 2025, following the end of the COVID-19 relief period. In July 2026, a new Repayment Assistance Plan (RAP) will take effect, which may lead to higher monthly student loan payments for some borrowers.
Homeowners should also note the availability of tax credits for eligible energy-efficient home improvements, such as installing solar panels or heat pumps. These credits can reduce the overall cost of qualifying projects, but keep in mind that they are currently scheduled to expire at the end of 2025.
In addition, new tax reporting requirements will affect users of payment apps like PayPal and Venmo. Beginning with the 2025 tax year, you’ll receive tax forms (Form 1099-K) for goods and services payments totaling $2,500 or more—lower than the previous $5,000 threshold in 2024. This means that more people will need to account for this type of income when filing their taxes.
Staying up to date on these developments empowers you to make informed financial choices and better plan for the future. Consulting with a qualified tax professional is highly recommended if you have specific questions about how these policy changes may affect your individual tax situation.
