New Car Loan Interest Deduction: What Business Owners Need to Know Before They Claim It

The One Big Beautiful Bill Act created a new tax deduction for interest paid on loans for new vehicles assembled in the United States. Up to $10,000 per year, above-the-line, available through 2028. For most employees and self-employed individuals with a qualifying car loan, this is straightforward money.

For business owners who already write off their vehicle, there’s a coordination rule you need to know about before you file.

What the deduction is

Starting with the 2025 tax year, you can deduct up to $10,000 in interest paid on a qualifying auto loan. The vehicle has to be:

• New — not used
• Final assembly in the United States — the VIN tells you this; you’ll need it on your return
• Purchased with a qualifying loan — leases do not qualify

The deduction is above-the-line, meaning you take it whether you itemize or not. It phases out starting at $100,000 MAGI for single filers and $200,000 for married filing jointly.

The deduction runs through the 2028 tax year. If you bought a qualifying vehicle in 2025 and still have a loan, you can deduct eligible interest in 2025, 2026, 2027, and 2028 — as long as you’re still making payments on the same loan.

The business-owner wrinkle

Here’s the part that doesn’t make the headlines. If you’re a self-employed owner, Schedule C filer, or S-corp owner who uses the vehicle for business — and you’re deducting a portion of that car loan interest as a business expense — you don’t get to count it twice.

The OBBBA car loan interest deduction is reduced by the amount of interest you already deducted for business purposes.

Run through the math:

Say your car is 80% business use. Total loan interest this year is $6,000. On Schedule C — or through your S-corp’s accountable plan — you deduct $4,800 of that as a business expense.

The remaining $1,200 is personal-use interest. That’s what qualifies for the OBBBA deduction. Not $6,000. Not $10,000. Just $1,200.

Compare that to someone who bought the same car and uses it entirely for personal driving. They deduct the full $6,000 under the OBBBA — capped at the $10,000 limit, above the line, no business-use calculation required.

The deduction tilts toward personal-use vehicles. The more business use you claim, the less benefit you get here.

Who actually gets the most out of this

The full $10,000 deduction is most valuable to a business owner who:

Drives a vehicle that’s mostly personal — the higher your personal-use percentage, the more of the loan interest is available for the OBBBA deduction.

Has a high loan balance with significant remaining interest — someone with $12,000+ in annual interest payments is more likely to approach the cap.

Is under the MAGI phase-out — single filers above $100,000 or joint filers above $200,000 start losing the deduction. The phase-out range isn’t published yet (the IRS will release specifics), but once you’re well above those floors, expect a reduced benefit.

Did not previously deduct the vehicle for business — if you bought a personal vehicle and never used it for business write-offs, every dollar of qualifying loan interest counts.

For owners who run a vehicle at 90%+ business use and have already taken the full depreciation (via Section 179 or 100% bonus depreciation), the OBBBA car deduction may be small — because you’ve already taken the business write-off on the interest. That’s not a problem; it just means the two strategies aren’t additive.

What about buying a vehicle specifically for the business?

Separate question, separate rules. If you’re buying a vehicle for business use and want to write off the purchase price, Section 179 and bonus depreciation are still the moves — you can deduct the full cost in the year you place it in service, subject to the business-use percentage and the luxury-car limits.

The OBBBA car loan interest deduction is a different tool. It applies to the interest on the loan, not the cost of the vehicle itself. And it applies based on your personal-use portion, not your business-use portion. Think of it as an additional personal-finance benefit that runs alongside your business write-off — but only applies to the slice of interest your business didn’t already claim.

What you need to document

A few things to have ready before you claim it:

The VIN — the IRS requires it to verify US final assembly. The first character of the VIN identifies the country of manufacture; the 11th character identifies the plant. A vehicle assembled in the US typically starts with 1, 4, or 5 — but verify through the official IRS or NHTSA database.

Proof this is a qualifying loan — the loan must be on the vehicle, the vehicle must be new, and the vehicle must be US-assembled. Dealer paperwork and loan documents cover this.

Business-use records — if you’re claiming any portion of the vehicle for business, you need a mileage log (or other contemporaneous records) to establish the business-use percentage. That same percentage determines how much interest you already deducted as a business expense — and therefore how much is left for the OBBBA deduction.

This deduction goes on Form 1040 as an above-the-line adjustment. It’s not a Schedule C item.

This post is for general informational purposes only and does not constitute tax, legal, or financial advice. The OBBBA car loan interest deduction is new law — IRS guidance on specific phase-out ranges and documentation requirements continues to be issued. Consult a qualified tax professional before filing. Geiger Tax & Accounting serves clients nationwide — (631) 532-5622 · info@geigertax.com.