The “One Big Beautiful Bill” provides several new tax breaks for individuals.
Take the up-to-$10,000 deduction for interest paid on loans to buy a vehicle.
This break kicks in for 2025 returns that you file next year and ends after 2028, unless lawmakers decide to extend it. It’s available to people who itemize on Schedule A and to those who claim standard deductions. Note that it’s a “below-the-line” deduction, meaning it is subtracted from adjusted gross income to arrive at taxable income. Filers use Part IV of new Schedule 1-A to figure the deduction and transfer the amount to line 13 of Form 1040. You’ll put in the vehicle identification number on Schedule 1-A. The write-off begins to phase out at modified adjusted gross income over $200,000 on joint returns and $100,000 on others and ends at modified AGIs above $250,000 on joint returns and $150,000 on other returns. Modified AGI is AGI shown on line 11 of the Form 1040 plus any foreign earned income exclusion, foreign housing exclusion, and certain income excluded because it was received from sources in Puerto Rico, Guam, American Samoa or the Northern Mariana Islands.
Interest paid on the purchase of a new qualified passenger vehicle is eligible for the deduction. A qualified passenger vehicle is a car, minivan, van, SUV, motorcycle, or pickup truck with a gross vehicle weight rating of less than 14,000 pounds that is bought for personal use. (Note that interest paid on auto loans for business use is deducted on Schedule C.) Also, the vehicle’s final assembly must occur in the U.S. You must purchase the passenger vehicle in 2025 or later. So, for example, if you financed the cost of a vehicle that you bought in 2024 for personal use, you cannot deduct the interest that you pay on the car loan in 2025 or later years. And you cannot deduct interest paid on a loan to buy a used vehicle.