On December 31 the Internal Revenue Service (IRS) and Treasury released guidance on the new law allowing an above-the-line deduction for interest paid on loans to buy new American-made cars. The guidance makes clear that the deduction is not available for cars used for business.

Generally, last summer’s tax and spending cuts law established a new, limited deduction of up to $10,000 for interest paid on loans for new American-made personal use cars purchased between the start of 2025 (thus including purchases made last year) and the end of 2028. The vehicle must be new (not used or leased) and have its final assembly in the United States. It must be a car, van, minivan, SUV, pickup, or motorcycle weighing less than 14,000 pounds. The loan must be secured by a lien on the vehicle and from a qualified, independent lender (not a family member or your own business). The vehicle must be used more than 50 percent for personal purposes.

The deduction starts to phase out for taxpayers with a Modified Adjusted Gross Income (MAGI) over $100,000 (single filers) or $200,000 (married filing jointly).

Per the IRS announcement:

“The proposed regulations issued today (December 31) 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.

“Who can take a deduction for interest on car loans

“To help taxpayers take advantage of this new tax benefit, today’s 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.”

The guidance (REG-113515-25) also covers reporting requirements which generally are applicable to lenders. It also notes that the cost of business-use cars remains deductible as a business expense, as it was before enactment of this personal use car loan interest deduction. The public comment period on the guidance closes Feb. 2, 2026.

Prospects: Relatively quick finalization of this proposed guidance is expected because the rules are needed for this year’s tax filing.

 NAIFA Staff Contact: Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org.