IRS Clarifies Which Vehicles Qualify for New Car Loan Interest Deduction

The IRS has released crucial guidance on President Trump's new tax deduction for car loan interest, and the eligibility requirements are more specific than many taxpayers might expect. While this benefit could provide meaningful tax savings for car buyers, only vehicles that meet strict "made in America" criteria will qualify for the deduction.

What the New Deduction Offers

The car loan interest deduction allows taxpayers to deduct interest paid on loans for qualifying new vehicles purchased between 2025 and 2028. The deduction is capped at $10,000 annually and starts to phase out for single filers earning $100,000 or more and married couples earning $200,000 or more.

Key requirements:

• Vehicle must be a new car, minivan, SUV, pickup truck or motorcycle (not used) with a gross vehicle weight of less than 14,000 pounds

• Must undergo final assembly in the United States

• Must be purchased for personal use (at least 50% of the time)

• Taxpayer must expect personal or family use when securing the loan

How to Determine if Your Car Qualifies

The IRS has provided specific guidance on verifying eligibility through two methods:

• Vehicle Information Label - Check the final assembly location on the label attached to cars on dealership lots

• VIN Database Search - Run your car's Vehicle Identification Number through the National Highway Traffic Safety Administration's database to determine the manufacturing plant location

This verification process is essential because not all new cars sold in the U.S. qualify for the deduction.

Things to Consider

If you are considering purchasing a new vehicle, this deduction adds another factor to the decision-making process. However, several considerations are important:

• Verify eligibility before purchase - Not all new cars qualify

• Consider total cost of ownership - The tax benefit should be weighed against the full financial impact

• Understand income limitations - Higher earners may not qualify for the full benefit

• Plan for documentation - Maintain proper records for tax filing purposes

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Questions?

Contact HFM CPAs for guidance on how this new deduction might affect your tax situation and whether a planned vehicle purchase could provide tax benefits. Our team stays current with evolving tax legislation to help you navigate new opportunities and requirements.

HFM CPAs provides specialized accounting, tax, and assurance services to individuals and businesses across Connecticut and Rhode Island.