Auto Loan Interest in Big Beautiful Bill
The Big Beautiful Bill (BBB) has generated a considerable amount of attention and controversy. A considerable amount of attention has been dedicated to its tax deductions for tips and overtime pay. However, not much attention has been given to the provision that allows taxpayers to take a deduction for auto loans when they buy a new car. This provision provides incentives to individuals looking to purchase a vehicle. Learn more about the auto loan interest in the Big Beautiful Bill.
As a disclaimer, the BBB is an extensive and controversial piece of legislation. It is the intent of this blog to focus on the provisions relating to auto loans. We will not address the many controversies that surround other provisions of the legislation.
Under the new legislation, individuals who purchase a car can claim a deduction of up to $10,000. The deduction applies to cars, trucks, motorcycles, and other vehicles intended to be used on road. (Vehicles not used on roads such as tractors do not qualify for the deduction.) Taxpayers do not need to itemize on their returns to take advantage of the deduction which is helpful to Taxpayers who use the standard deduction rather than itemizing.
Like many of the other tax breaks in the BBB, there are limitations. The deduction only applies to cars purchased in the 2025, 2026, 2027, and 2028 calendar years. The amount of the deduction phases out for individual taxpayers earning over $100,000 per year and married taxpayers earning over $200,000 per year. Married Filing Separate Taxpayers may not claim the deduction.
There are further limits on the deduction. These further limitations include the deduction is only available for personal vehicles and is not available for business vehicles. Unless the IRS issues guidance to the contrary, a person that uses their vehicle primarily for personal use but may occasionally use it for gig work may disqualify themselves from claiming the deduction.
The deduction is only available for vehicles assembled in the United States. Taxpayers that buy imported cars may not be able to take advantage of the deduction. The deduction only applies to new cars as well and is not available for leases or fleet purchases.
If you are on the fence about buying a new car, the “Big Beautiful Bill” may sway your decision. Subject to limitations, a new car purchase can provide a tax deduction.
The experienced attorneys at RJS LAW provide Tax Planning, Tax Controversy, and Estate Planning Services. We can help you plan for your next vehicle purchase or perhaps help you plan for bigger and better things. Please do contact us for a free consultation if you have any questions about any Tax and/or Estate Planning issue.