If you bought a new car last year, you could qualify for this tax break. Here’s what to know.

The new tax break for car owners in the United States could provide significant relief for millions of Americans who purchased a new vehicle last year. The car loan tax deduction, which was part of the Republicans’ tax reform bill signed into law by President Trump, allows taxpayers to deduct interest paid on their auto loans.

According to experts, the auto loan interest deduction could result in tax savings of hundreds or even thousands of dollars for eligible taxpayers. With the rising costs of car ownership, including monthly payments for new vehicles reaching $750 on average, the deduction comes as a welcome relief for many consumers. Additionally, the increasing rate of auto loan delinquencies highlights the financial strain that car ownership can place on individuals and families.

Jeremy Robb, chief economist at Cox Automotive, estimates that around 4 million of the nearly 13.4 million new cars sold in the U.S. last year would be eligible for the deduction. However, the tax provision only applies to new vehicle purchases, excluding those who used loans to buy used cars or lease vehicles.

The auto loan deduction allows taxpayers to claim up to $10,000 a year on interest paid on loans to purchase a new American-made car. The eligibility criteria include a limit on modified adjusted gross income (MAGI), with single taxpayers earning up to $100,000 and married couples earning up to $200,000 qualifying for the full deduction. The deduction amount decreases for incomes above these limits.

To claim the deduction, taxpayers must gather their 2025 auto loan statements and fill out a Schedule 1-A form with relevant information about their income, auto loan, and VIN. The deduction is available for new vehicles purchased between Jan. 1, 2025, and Dec. 31, 2028, with the tax break set to expire after 2028.

The potential tax savings from the new auto loan deduction vary based on the individual’s income and loan amount. The American Financial Services Association estimates that eligible car buyers could save thousands of dollars over the life of their loan, depending on factors such as the interest rate and loan duration.

Overall, the car loan tax deduction offers a valuable opportunity for eligible taxpayers to reduce their tax liabilities and make car ownership more affordable. As with any tax-related benefit, it is advisable for individuals to consult with the IRS or a licensed tax preparer before claiming the deduction to ensure compliance with all regulations and guidelines.