Is Your Car Eligible for a Tax Deduction of Up to $10,000? It might
The “Great Bill” passed last year made several tax changes related to the purchase of vehicles that qualified buyers can use when they purchase certain vehicles assembled in the United States.
The bill eliminated a federal tax credit of up to $7,500 for the purchase of qualified electric vehicles, but replaced it with a new credit that allows taxpayers to claim up to $10,000 a year in interest on loans to purchase a new American-made vehicle purchased between Jan. 1, 2025 and Dec. 381, 2020.
Since most people don’t pay $10,000 in interest on a car loan each year, the average annual savings will vary depending on what you pay and your income tax rate, but experts told the Detroit Free Press, part of the USA TODAY Network, that those new car buyers who qualify could see annual tax savings of $300 to $900. Auto shopping experts expect the credit will encourage more buyers to look for cars that qualify for the tax deduction.
“Although affordability is the most important factor for consumers when buying a car, our research shows that because of the ongoing tax issues and now adding this tax incentive to the mix, Americans are more willing to understand where the car was made,” Patrick Masterson, lead researcher for the American-Made Index of American-Made Index, Patrick Masterson, told the Detroit Free Press.
New Car Loan Deduction Rules
There are requirements to qualify for the deduction, which are described at www.IRS.gov. They include that only new cars are eligible – used cars are not eligible. Also, vehicles must be purchased – not leased, leases do not qualify – and used for personal use to qualify for the car deduction.
Single taxpayers earning up to $100,000 in adjusted gross income and married couples earning up to $200,000 are eligible. Adjusted net income is the sum of adjusted gross income and untaxed income. The IRS explains how it’s calculated here on its website. The amount that taxpayers can write off is reduced by $200 for every $1,000 in income above those income limits.
Vehicles that qualify for the loan deduction can be a car, minivan, van, SUV, van or motorcycle as long as they have a gross vehicle weight of less than 14,000 pounds, the IRS said. That means many heavy-duty trucks won’t qualify, Masterson said.
Most notably, the vehicle must have been last assembled in the United States – that is, where it is assembled before being shipped to the dealer.
Other Eligible Vehicles
“There are three surefire ways buyers can find a car that meets the criteria for this incentive,” Masterson said. “First, check the vehicle identification number (VIN); if it starts with a 1, 4, or 5, it was assembled in the US and therefore meets the minimum incentive.”
For those looking for a place to start, buyers can look to Cars.com’s 2025 American-Made Index. The 2026 model will debut in June and may have some changes to it as some cars built in the United States ended production last year, such as the Ford Escape. Even the integration of some cars was brought to the United States because of President Donald Trump’s 25% tax on imported cars.
But here are 10 cars from this year that Masterson said he believes will be among the many others to qualify:
- Tesla Model Y
- Ford F-150
- Lincoln Aviator
- Chevrolet Corvette
- Honda Passport
- The Jeep Gladiator
- Dodge Durango
- Volkswagen ID.4
- Toyota Corolla Cross
- Acura MDX
Masterson said that when buyers start on a third-party website like www.cars.com, its dealers include the VINs of the cars they list.
Another way to determine if a car is eligible is to look for the Monroney sticker on the window of a new car to see where it was assembled. Also, you can find the factory where the vehicle was manufactured by entering the Vehicle Identification Number on the National Highway Traffic Safety Administration’s website at www.nhtsa.gov.
How to Apply for a Withdrawal
If the car is assembled in the United States, the buyer must enter the VIN on Schedule 1-A to claim the deduction, according to Detroit Free Press financial columnist Susan Tompor, who said to look up page 2 of Schedule 1-A titled “No Car Loan Interest Tax.”
Tompor said the taxpayer should claim the “additional amount withheld” on Schedule 1-A, line 38, of your Form 1040, line 13b. A person can claim a car loan interest deduction if they are withholding regular income or if they itemize other deductions on Schedule A.
Masterson said car buyers will have to do the math to see if they’ll get a better deal by buying a car assembled last in the United States and taking what they can withhold from the tax or buying goods from other countries that may have better incentives attached to them. It also comes up with what the car is made of.
“Although you can save up to $10,000, there is no definitive answer because a lot of this depends on the buyer, his credit and what he spends on the car,” Masterson of the potential savings in the benefit of buyers may see. “It’s a very emotional goal because not everyone pays the same amount or is in the same boat.”
Jamie L. LaReau is a senior auto writer for USA TODAY Co. which includes Ford Motor Co. of the Detroit Free Press.
This article originally appeared in the Detroit Free Press: Does your car qualify for a tax deduction of up to $10,000? It might
Reporting by Jamie L. LaReau, Detroit Free Press / Detroit Free Press
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