Guidance on the New Deduction for Car Loan Interest

The Department of the Treasury and the Internal Revenue Service provided guidance on the “No Tax on Car Loan Interest” provision enacted under the One, Big, Beautiful Bill.
The proposed regulations relate to a new deduction for interest paid on vehicle loans incurred after Dec. 31, 2024, to purchase new made-in-America vehicles for personal use. This new tax benefit applies to both taxpayers who take the standard deduction and those who itemize deductions.
To help tax professionals and their clients take advantage of this new tax benefit, the guidance addresses important eligibility criteria, including:

• Providing rules relating to new vehicles eligible for the deduction, including for determining if the final assembly of a vehicle occurred in the United States;
• Providing rules for determining which vehicle loans qualify and the amount of interest paid on a loan that may be deductible;
• Providing rules for determining if a new vehicle is purchased for personal use; and
• Identifying taxpayers who can take the deduction and clarifying the $10,000 annual deduction limit.