“No Tax on Car Loan Interest” for 2025–2028: The VIN-on-the-Return Deduction (With Strings Attached)

OBBB added a new federal deduction that sounds simple—deduct your car loan interest—but it comes with enough conditions that plenty of people will miss it or claim it wrong. The IRS built this one to be documentation-forward: income limits, vehicle eligibility rules, and a VIN requirement on the tax return.

Quick reminder: this is federal. Your state may not follow it automatically.

1) What it is: up to $10,000/year of car loan interest (2025–2028)

For tax years 2025 through 2028, eligible taxpayers can deduct up to $10,000 per year of interest paid on a qualified vehicle loan for personal use.

This is a deduction, not a credit—so the tax benefit depends on your bracket.

2) Income limits: it phases out above $100k / $200k MAGI

The IRS states the deduction phases out when modified adjusted gross income (MAGI) exceeds:

  • $100,000 (single), or

  • $200,000 (married filing jointly).

Practical takeaway: If you’re near the threshold, a bonus, RSU vest, Roth conversion, or capital gains can partially or fully eliminate the deduction. Run the numbers before you count on it.

3) Vehicle eligibility: “new to you” + final assembly in the U.S. + VIN on the return

This deduction is not “any car loan.”

The IRS guidance highlights three compliance anchors:

A) The vehicle must be new to the taxpayer

The IRS describes the vehicle as needing to be “new” for the taxpayer (i.e., you can’t recycle an old loan or claim this on a vehicle you already owned).

B) Final assembly in the U.S.

IRS materials emphasize that final assembly must occur in the United States for a vehicle to qualify.

C) VIN requirement on the return

This is the big one: the IRS states taxpayers must include the vehicle identification number (VIN) on the return to claim the deduction.

Translation: If you don’t have the VIN handy at filing time, you’re going to stall. Get it now.

4) Lender reporting + 2025 transition guidance: what borrowers should do

Lenders have reporting obligations

The IRS notes that lenders have reporting requirements to support the deduction (i.e., information returns / statements that identify qualified vehicle interest).

But 2025 is a transition year (don’t assume the form will be perfect)

Treasury/IRS issued transition guidance for tax year 2025 because systems and forms won’t all be instantly aligned. In plain terms: there may be gaps in how clearly your lender’s forms break out “qualified” interest under the new rules.

What to do as a borrower (simple and practical):

  • Keep your year-end loan statement(s) that show interest paid in 2025.

  • Save your purchase/financing docs (purchase contract + loan agreement).

  • Save documentation supporting final assembly in the U.S. (manufacturers and dealer documentation are often the easiest).

  • Capture the VIN now (photo of door jamb label or registration).

This is the difference between “smooth filing” and “two weeks of back-and-forth with your lender and preparer.”

5) Common mistakes we expect this filing season

  1. Claiming the deduction on a vehicle that doesn’t meet final assembly rules.

  2. Assuming any vehicle loan interest qualifies (business-use or mixed-use scenarios require extra care).

  3. Forgetting the VIN and losing time at filing.

  4. Ignoring the MAGI phaseout and overclaiming the deduction.

  5. Relying on lender forms alone in 2025 instead of keeping your own support file.

Filing-season checklist (60 seconds)

If you financed a vehicle in 2025 and want this deduction:

  • Confirm MAGI is under/near $100k single / $200k joint (or you understand the phaseout).

  • Confirm final assembly in the U.S.

  • Confirm the vehicle is “new to you.”

  • Pull the VIN and store it with your tax file.

  • Save loan statements showing interest paid in 2025.