OBBBA Above-the-Line Auto Loan Interest Deduction (2025-2028)
The One Big Beautiful Bill Act (OBBBA) introduced a new above-the-line tax deduction for auto loan interest paid on new vehicles assembled in the United States. This means you can deduct up to $10,000 of car loan interest per year from your taxable income, regardless of whether you itemize deductions or take the standard deduction.
The deduction phases out for higher-income taxpayers. For single filers, it begins phasing out at $100,000 MAGI and is fully eliminated at $150,000. For married filing jointly, the phase-out range is $200,000 to $300,000. This is a linear phase-out, meaning if you are halfway through the range, you lose 50% of the deduction.
Starting in 2026, lenders will issue Form 1098-VLI (Vehicle Loan Interest) to borrowers, reporting the total auto loan interest paid during the year. This form works similarly to Form 1098 for mortgage interest and will be used when filing your tax return to claim the deduction.
Only brand-new vehicles with final assembly in the United States qualify. The vehicle must be for personal use and purchased between 2025 and 2028. You can check if a specific model qualifies by looking up its final assembly location on the manufacturer's website or the vehicle's window sticker (Monroney label).
No. The OBBBA auto loan interest deduction is exclusively for new vehicles. Used cars, certified pre-owned vehicles, and leased vehicles do not qualify. If you purchase a used vehicle, you cannot claim any portion of the interest as a deduction under this provision.
You can deduct up to $10,000 of auto loan interest per year. The actual amount depends on your loan balance, interest rate, and income level. Higher-income taxpayers face a phase-out that reduces the deduction. Single filers with MAGI above $100,000 and joint filers above $200,000 begin to see reductions.
Form 1098-VLI (Vehicle Loan Interest) is a new IRS information return that auto lenders will begin issuing in 2026. It reports the total interest you paid on your qualifying auto loan during the tax year. You will use this form when filing your tax return to claim the above-the-line deduction, similar to how Form 1098 is used for mortgage interest.
Yes! This is one of the biggest advantages of the OBBBA auto loan interest deduction. Because it is an above-the-line deduction (also called an adjustment to income), it reduces your Adjusted Gross Income (AGI) directly. You can claim it whether you take the standard deduction or itemize your deductions. This makes it available to all eligible taxpayers regardless of their deduction strategy.
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