No Tax On New Cars: What You Need To Know

If you purchased or plan to purchase a brand-new passenger vehicle between tax years 2025 and 2028, you may be eligible for a valuable tax deduction thanks to recent changes in tax law. Here’s a comprehensive guide to help you understand the requirements and take advantage of this benefit.

What’s the Benefit?

Starting with the 2025 tax year, interest paid on your vehicle loan—up to $10,000 annually—may be tax deductible if your purchase meets the criteria below. This deduction can significantly reduce your taxable income, but it’s important to confirm eligibility with a tax advisor before filing.

Eligibility Requirements

To qualify, your purchase must meet all of the following conditions:

• Vehicle Type: Must be a brand-new passenger vehicle purchased and financed. Used cars and leases do not qualify You must be the first owner of your vehicle.
• Final Assembly in the U.S.: The vehicle must be assembled in the United States. Tip: Vehicles assembled in the U.S. often have a VIN starting with 1, 4, or 5. See FAQs section at the end of this post for other ways to determine final assembly.
• Personal Use: The vehicle must be purchased for personal use, not business purposes.
• Income Limits: The maximum deduction of $10,000 begins to phase out at a rate of 20% for taxpayers with a Modified Adjusted Gross Income (MAGI) over $100,000 (single filers) or $200,000 (joint filers).

What Should You Do Next?

1. Check Your Year-End Statement:
   Review your December 2025 loan statement for the total interest paid during the calendar year. Signed up for eStatements? Members can find their end-of-year statement inside Online Banking. If you paid off your loan in 2025, check the payoff month’s statement for the full interest amount.
2. Consult a Tax Professional:
   Tax rules can be complex, and eligibility depends on your unique situation. A qualified tax advisor can confirm whether you qualify and guide you through the process.
3. Keep Documentation Handy:
   Save your purchase agreement, VIN details, and interest statements. Your tax professional may need to review these items.

FAQs About the Vehicle Loan Tax Deduction

Do electric vehicles qualify for this tax deduction?
Yes! As long as the vehicle meets the requirements—brand new, passenger vehicle, final assembly in the U.S., and purchased for personal use—electric vehicles do qualify.

What if I refinance my vehicle loan?
If a qualifying vehicle loan is later refinanced, interest paid on the refinanced amount is generally eligible for the deduction.

Can I claim this deduction if I bought a used car?
No. The deduction applies only to brand-new vehicles purchased and financed during tax years 2025–2028.

How do I know if my vehicle was assembled in the U.S.?
Check your VIN. Vehicles assembled in the U.S. typically start with 1, 4, or 5. You can also confirm with your dealer or manufacturer, or try running your car’s VIN through the National Highway Traffic Safety Administration’s online VIN Decoder. Your VIN can be found on your purchase paperwork, registration, insurance documents, and will be etched onto the body of your vehicle. Common locations include door frames, driver’s side dashboard or on the frame itself. Refer to your owner’s manual.

What happens if my income exceeds the limit?
If your Modified Adjusted Gross Income is above $100,000 (single) or $200,000 (joint), the deduction begins to phase out at a rate of $200 per $1,000 over the income limit and is entirely eliminated for those making more than $150,000 (single) and $250,000 (joint).

Pro Tip: If you’re planning a new vehicle purchase in the next few years, consider these requirements before you buy. Choosing a U.S.-assembled vehicle and financing it could unlock significant tax savings.

Ready to buy or refinance a vehicle? Sandia Area offers low rates, 90 days with no payments*, and quick decisions.

Learn more!

*Interest accrues during the 90-day deferral period.