The new car loan interest deduction can save you a significant amount of money, but you need to qualify. The experienced tax professionals at Moskowitz LLP can help determine whether you are able to take this deduction.
One big beautiful bill act included numerous tax provisions that can result in deductions or credits. The ability to deduct interest on a loan for a new car is one of the key aspects of the law. However, not everyone will qualify for this deduction, so you must understand when it actually applies.
Talk to a tax preparation professional at Moskowitz, LLP to gain confidence that you are getting every dollar to which you are legally entitled and tax deductions. Call our team at (888) TAX-DEAL (829-3325). The new tax law can help you in many ways, but you need to know how to take advantage of it.
When Does the New Car Loan Interest Deduction Apply?
Under the new tax law, you can claim a deduction of car loan interest up to a maximum of $10,000 per year when you purchase the following types of vehicles:
- Cars
- SUVs
- Motorcycles
- Pickup trucks
- Vans
This deduction applies to loans for new cars that were initiated after December 31, 2024. The deduction is only for new cars. Further, you cannot deduct the principal that you pay back as part of your loan. The deduction applies only to interest on the vehicle.
High-Income Taxpayers May Not Qualify for This Tax Break
Like many tax breaks, the vehicle loan interest deduction begins to phase out at a certain income level. This tax deduction will not be available to high-income taxpayers. The level of modified adjusted gross income at which the deduction begins to phase out is as follows:
- $100,000 for a single taxpayer
- $200,000 for a married couple
This tax deduction is “above the line.” Even if you take the standard deduction, and you do not itemize, you can still deduct interest for new car loans.
The tax deduction will be reduced by $200 for every $1,000 that you are over the income threshold. Since the total maximum amount of the tax deduction is $10,000, it follows that the maximum amount of income that you can earn and still deduct new car loan interest is:
- $150,000 for a single taxpayer
- $250,000 for a married couple
If you are a married couple, you must jointly file your tax return to qualify for this deduction. Those who are married and file separate returns are ineligible to deduct new car loan interest.
Other Restrictions on Your Eligibility for the New Car Loan Interest Deduction
In addition to income levels, there are also restrictions on the tax deduction based on the vehicle itself. To qualify for the tax deduction, the vehicle must have been assembled in the United States. Because some foreign car companies have United States plants that assemble vehicles, you may still qualify for this deduction when you have purchased one of these cars. Here, you need to be aware of where the vehicle was assembled, and it is very simple to learn. All you have to do is check the vehicle identification number that is inside your door. If it begins with a 1, 4, 5 or 7. Your vehicle was assembled in the United States, and you are eligible to take the tax deduction.
In addition, there are others who will not be allowed to claim this deduction for interest. The deduction applies only to interest paid on loans for personal vehicles.
You can only claim the interest if you have taken out a loan that is secured by the vehicle itself.
Contact a Tax Preparation Professional
As with any new tax break, it may take some time to fully grasp the rules and how they apply to you. The good news is that you do not have to do this yourself because the experienced tax preparation professionals at Moskowitz, LLP are here to help. Schedule an appointment with a tax preparation professional by visiting our website or by calling us today at (888) TAX-DEAL (829-3325).
