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Your Car Payments Might Come With A Tax BreakThanks to new tax cuts from President Trump, you might get a break on your taxes for making your car payments. It’s similar to when you get a deduction on federal taxes for interest paid on your home loan, although not everyone who’s paying on a car qualifies.
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For starters, the car you’re using for this deduction has to be new, not used. We know that makes it more expensive, so not everyone will think it’s worth buying something fresh from the factory to get the tax break.
Your loan has to be issued in 2025, so you’re out of luck if you bought a new ride at the tail end of 2024. The law will cover loans on new vehicles through 2028.
Any car, truck, SUV, motorcycle, or van qualifies for the tax break as long as it weighs less than 14,000 lbs. That’s the government threshold for light vehicles, so you’re likely on the right side of that measurement.
Your vehicle has to be purchased for personal use, not as a fleet or commercial ride.
The vehicle also has to be assembled in the US, not in Canada, Mexico, or any other country. Obviously, this is to incentivize people to purchase cars made here.
If your vehicle qualifies for the tax break, you can deduct up to $10,000 in interest paid annually. However, individuals making more than $150,000 don’t qualify and the deduction phases out for those making between $100,000 and $150,000.
For couples, it phases out between $200,000 and $250,000, with any joint filers making more than that not qualifying.
If you’re thinking because you don’t itemize deductions this break doesn’t apply to you, that’s not necessarily true. Meeting all the other qualifications means you can take this deduction without itemizing. But we’d talk to a tax professional before filing.
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