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You Make the Call - Oct. 22, 2025

Published:
By: NATP Staff
Learn whether interest paid on a used car loan qualifies for the One Big Beautiful Bill Act’s “No Tax on Car Loan Interest” deduction. Discover the eligibility rules under §70203, including income limits, qualified vehicle requirements and what makes a vehicle ineligible for the deduction.

Question: Taylor is single and has a modified adjusted gross income (MAGI) of $92,000 for the 2025 tax year. On Jan. 18, 2025, Taylor bought a certified pre-owned 2023 sedan for personal use and financed the purchase with a bank loan secured by the vehicle. In 2025, Taylor paid $1,240 of interest on that loan.

Can Taylor claim the One Big Beautiful Bill Act’s (OBBBA) “No Tax on Car Loan Interest” deduction for the $1,240 on the 2025 return?

Answer: No. The vehicle’s original use did not commence with Taylor (it was used), which §70203 requires for an applicable passenger vehicle.

The OBBBA created a temporary deduction (tax years 2025-2028) for interest paid on a loan to buy a qualified personal-use vehicle. The annual deduction is capped at $10,000 and phases out for MAGI over $100,000 ($200,000 MFJ). It applies regardless of whether the taxpayer itemized their deductions.

Under Section 70203 of the OBBBA, the provision requires the vehicle to be secured by a first lien on an applicable passenger vehicle for personal use and the vehicle must have final assembly in the United States.

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"NATP team committed to supporting tax professionals with expert insights, industry updates, and resources, shown with green triangle design element representing the organization's brand.

NATP Staff

The NATP team is dedicated to supporting tax professionals with expert insights, industry updates, and resources that help them serve their clients with confidence.

Information included in this article is accurate as of the publication date. This post does not reflect tax law changes or IRS guidance that may have occurred after the publishing date.