Auto Loan Interest Tax Deduction in 2025: What Dealers Need To Know

Legislation has made a significant impact on the automotive industry over the past decade, and 2025 brings another change that could affect how customers approach vehicle purchases. 

New legislation allows buyers to write off the interest they pay on an auto loan on their taxes — up to $10,000 a year — for qualifying vehicles purchased between 2025 and 2028. This shift could make vehicle ownership more affordable for some customers but the eligibility requirements likely mean few will see significant returns.  

For dealers, understanding this new benefit is key to addressing curious customers who likely won’t understand its many nuances. 

What Vehicles Qualify for the Auto Loan Tax Deduction?

New vehicles — including cars, minivans, SUVs, pickup trucks and motorcycles — under 14,000 pounds purchased for personal use qualify. Pre-owned vehicles don’t make the cut, nor do ATVs, trailers, campers, fleet sales or commercial vehicles. 

The critical determining factor, though, is the final assembly location, which must be in the U.S. Dealers should be prepared to help customers verify where their vehicle was actually built to confirm whether the vehicle they’re interested in qualifies. This single rule will eliminate roughly half of all vehicles sold in the U.S. currently and certain automakers assemble more in the U.S. than others. 

Who Qualifies for the Deduction?

The deduction is also limited by income. Single filers or individuals earning up to $100,000 annually and joint filers earning up to $200,000 can claim the full deduction. Above these income thresholds, the deduction is reduced by $200 for every $1,000 of income. 

The auto loan interest deduction phases out entirely at $150,000 for single filers and $250,000 for joint filers. The deduction applies also to taxpayers who don't itemize their deductions. If a buyer later refinances their loan, they can still deduct the interest but only up to the original loan amount. 

How Do You Determine if a Vehicle Qualifies? 

Dealers play a crucial role in confirming vehicle eligibility. Federal law requires dealers to list the final assembly location for every vehicle on their lot, making verification straightforward for most transactions. 

For virtual customers or those seeking additional assurance, the NHTSA VIN Decoder provides an easy way to identify the plant of manufacture. Provide these resources to demonstrate dealer expertise and help build customer confidence in their purchase decision. It will also position dealers as knowledgeable guides during the financing process.

How Much Will Buyers Actually Save?

While the deduction allows up to $10,000 in annual interest write-offs, it doesn’t mean consumers will receive a check in the mail from the government. Instead, it reduces the amount of income they're taxed on, which can lower their tax bill or increase their refund. 

For example, say a single filer earning $85,000 in the 22% tax bracket purchases a 2025 Honda Accord SE assembled in Ohio for $31,755. If they financed it over five years at 6.5% interest, they’d pay about $1,900.51 in interest in the first year. Deducting that amount would reduce their tax bill by roughly $418. Each year of a loan sees less in interest paid so car buyers will see smaller savings through the life of the loan. 

Lenders who receive the qualified interest (such as the bank or organization you finance through) must provide statements showing the total amount of interest paid during that taxable year, along with the vehicle's VIN, make, model and loan details. Buyers will use that statement when filing their taxes.

What This Means for Dealerships

This new tax benefit gives dealers an opportunity to add value in customer conversations about financing. Understanding the qualification requirements allows Sales teams to identify eligible customers and position financing options accordingly. Domestic assembly requirements may also influence customer interest in certain models or manufacturers. 

Because the benefit of the rule isn’t realized until tax returns are filed, dealers may have a hard time explaining its impact on the affordability of the car they’re selling. 

Ultimately, this legislation demonstrates how tax policy continues to shape automotive purchasing decisions. The size of the deduction itself might not be enough to sway a shopper’s final purchase but it’s additional ammunition in the ever-increasing affordability conversation.