Vehicle Loan Tax Deduction
You may be eligible for a tax deduction of up to $10,000 for annual interest paid on loans to acquire U.S.-assembled* qualifying vehicles for eligible consumers.
Understanding the New Vehicle Loan Tax Deduction for 2025
Exciting changes are coming for Subaru buyers with new federal legislation that has recently taken effect in July 2025. These updates could save you money on your next vehicle purchase through a new tax deduction for car loan interest. Here's a quick look at what you need to know:
What is the New Vehicle Loan Tax Deduction?
This new federal tax deduction allows eligible taxpayers to deduct a portion of the interest paid on new car loans. Unlike a tax credit, which directly reduces your tax bill, a deduction reduces your taxable income, potentially lowering the amount of tax you owe. This initiative is designed to provide middle-class tax relief and make car ownership more affordable. It's crucial to remember that this is a deduction you'll claim when you file your taxes, not at the time of purchase.
When Does the Vehicle Loan Tax Deduction Take Effect?
The deduction is expected to apply retroactively to the 2025 tax year, meaning it covers purchases made from January 1, 2025. This provision is currently set to be in effect from 2025 through 2028. However, like all legislation, it is subject to potential extension or repeal in the future. Keep in mind that final IRS guidance is still pending, so some details may be clarified further.
Which Vehicles Qualify for the Loan Tax Deduction?
The legislation outlines specific requirements for vehicles to qualify for this deduction. Generally, it applies to:
- New vehicles: Used vehicles and leases are not eligible.
- Must be assembled in the United States: This emphasizes support for domestic manufacturing. The final assembly plant location is what matters. This eligibility is VIN-specific, and not all vehicles of the same model may qualify. *
- Purchased for personal use only: Commercial or fleet vehicles do not qualify.
- Light vehicle restrictions: Cars, motorcycles, sport utility vehicles, minivans, vans, and pickup trucks weighing less than 14,000 pounds.
There are also buyer income limitations, with the deduction phasing out for individuals with higher modified adjusted gross incomes (MAGI).
Below are Subaru models assembled in the US (as of July 2025). However, note that this is not an official, comprehensive list of eligible vehicles. We anticipate the IRS will provide one in the near future.*
What Cautions and Clarifications Should Car Buyers Be Aware Of?
While this legislation has passed, the fine details are still being finalized. The IRS will be issuing further rules and interpretations, which may provide additional clarity on eligibility, documentation, and claiming procedures.
For more information, you may visit the IRS website.
*Eligibility for the Vehicle Loan Tax Deduction is subject to IRS guidelines, including vehicle type, personal use, final assembly location, and buyer income. This potential deduction is VIN-specific, and not all vehicles of the same model may qualify. Consumers should verify the eligibility of each vehicle under consideration. Legislative details may change, and final IRS guidance is pending. Please consult a qualified tax advisor for advice specific to your situation.
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