Question: Sarah is a single taxpayer with a modified adjusted gross income (MAGI) of $95,000. In January 2025, she bought a brand-new SUV assembled in the U.S. for personal use. At the same time, she took out a loan secured by the vehicle as a first lien. She anticipated paying $9,500 in interest by the end of 2025. She heard the new law allows her to deduct the full amount. Sarah does not itemize. Can she still take the full deduction on her 2025 tax return?
Answer: Yes, she can. Even though she doesn’t itemize deductions, she can deduct the full $9,500 of interest as a below-the-line deduction (subtraction from adjusted gross income to arrive at taxable income) on her 2025 tax return. Under the new law, §63(b)(7) has been added to the Internal Revenue Code. This change allows for this special deduction for the qualified interest paid on personal car loans.
OBBBA provides individuals (including non-itemizers) with a temporary tax deduction for interest paid on loans used to purchase a new personal-use passenger vehicle.
For tax years 2025 through 2028, taxpayers may deduct up to $10,000 of the car loan interest per year, subject to a phase-out starting at $100,000 MAGI for single filers ($200,000 for joint filers), with the deduction fully phased out at $150,000 MAGI ($250,000 for joint filers).
To qualify, the following requirements under new §613(h), added by Section 70203 of the OBBBA, must be met:
- The loan must be incurred after Dec. 31, 2024
- The vehicle must be new, for personal use and secured by a first lien
- The vehicle’s original use must begin with the taxpayer (i.e., Sarah must be the first user)
- The vehicle must be a car, van, SUV, pickup truck, motorcycle or minivan with a gross vehicle weight rating under 14,000 pounds
- The vehicle must be finally assembled in the United States
- The taxpayer must report the vehicle identification number (VIN) on their tax return
The deduction is phased out starting at $100,000 MAGI for single filers ($200,000 for joint filers), but Sarah’s MAGI of $95,000 is below that threshold.
Sarah meets all requirements, and her MAGI of $95,000 is below the phase-out threshold. Therefore, she can deduct the full amount on her 2025 tax return.
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Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing.