Car Loan Tax Deduction: Who Qualifies and What You Can Claim
Anytime you can deduct something from your taxes, it's a good thing. With recent laws being signed into effect and EV credits toward purchases, there is no better time to explore everything Volkswagen has to offer. In today's post, we will cover car loan tax deduction news and how this affects Volkswagen drivers and shoppers, plus get into who and what qualifies someone for this historic tax deduction. If you're ready to learn everything there is to know about the Made-in-America Car Loan Tax Deduction, keep reading.
Made-in-America Car Loan Tax Deduction
The Made-in-America Car Loan Tax Deduction is a provision of the "One Big Beautiful Bill Act" passed by Congress and signed into law by President Donald Trump on July 4, 2025. It allows eligible individuals to deduct up to $10,000 per year in interest paid on loans for new U.S.-assembled vehicles for their taxes and encourages more domestic auto production and purchasing. If the car you are interested in is mainly produced or assembled here, it could very well be deductible from your taxes according to this new law.
The One Big Beautiful Bill
The One Big Beautiful Bill (OBBB) is a spending bill passed and signed into law this year. It covers everything from no tax on tips to automotive credits and deductions for interest paid each calendar year and will be in effect through 2028. This bill affects the automotive industry significantly, as it introduces the car loan tax deduction and offers an additional EV credit to qualifying vehicles and shoppers.
Who Can Claim the OBBB Car Loan Tax Deduction?
If you purchase a new car after December 31, 2024, and until 2028, when this expires, and it meets all requirements, you can deduct up to $10,000 in interest paid on your taxes. You have to purchase a qualified vehicle that the taxpayer will use themselves, according to the IRS. This deduction also phases out beginning with those who have a modified adjusted gross income (MAGI) over $100,000 for single filers ($200,000 for joint filers).
How Much Can You Save?
The potential tax savings with this car loan tax deduction are up to $10,000 per tax filer and vehicle. According to the One Big Beautiful Bill, Americans who shop domestically will be able to write off as much as $10,000 in interest paid on a new vehicle loan.
Which Volkswagen Vehicles are Eligible?
If you want to get in on this tax deduction, there are a few Volkswagen models that apply to the Made-in-America Car Loan Tax Deduction. They include the:
- Volkswagen Atlas (All trims: SE, SE with Technology, Peak Edition, SEL, and SEL Premium R-Line) - assembled at the Volkswagen Chattanooga Assembly Plant in Chattanooga, TN.
- Volkswagen Atlas Cross Sport (All trims: SE, SE with Technology, SEL, SEL R-Line, and SEL Premium R-Line) - assembled at the Volkswagen Chattanooga Assembly Plant in Chattanooga, TN.
- Volkswagen ID.4 (All trims: Standard, Pro, AWD Pro, S, Pro S, and AWD Pro S) - assembled at the Volkswagen Chattanooga Assembly Plant in Chattanooga, TN.
Questions to Ask Us When Shopping
You might have questions when shopping for a new Volkswagen in 2025 and how your potential tax savings will be affected, depending on the car you go with. Our team at Central Volkswagen is here to help you find a domestically assembled vehicle that fits your needs and budget, and we are always here to explain the details to you in person if needed. We recommend asking which cars on our lot are assembled here in the USA, as well as which purchases are covered by this spending bill's provision.
Of course, you should always consult a certified tax expert before filing your taxes or deducting anything from them.
How to Claim the Car Loan Interest Tax Deduction
To claim the car loan interest tax deduction listed out in the One Big Beautiful Bill, your vehicle and payments must meet the required criteria. For instance, these things must be met to qualify:
- Your Volkswagen must be purchased new.
- Final assembly of the vehicle must take place in the United States.
- Your new car must be for personal, not business, use.
- The vehicle must weigh under 14,000 pounds.
- The loan must have originated after December 31, 2024.
- The loan needs to be secured by a lien on the car.
- The deduction is limited to $10,000 annually.
Benefits of Claiming the OBBB Car Loan Tax Deduction
Claiming the OBBB car loan tax deduction is a huge benefit to anyone looking to save on their annual taxes. Not only does this reach up to $10,000 in deductions for qualifying interest payments, but it can ease the burden on Americans who shop domestically. Volkswagen continues to expand its U.S. production efforts, and this makes your next tax season all the better if you choose one of the qualifying vehicles offered by the brand.
Car Loan Tax Deduction FAQs
Below, we will review some common car loan tax deduction questions and hopefully clear things up for shoppers interested in these potential savings. Remember, we are not tax experts, but we can provide information on vehicle assembly and qualifications for credits.
What Types of Loans Qualify?
The types of loans that qualify for the Made-in-America Car Loan Tax Deduction include:
- New vehicle purchase loans: The deduction applies to new car loans taken out between January 1, 2025, and December 31, 2028.
- Refinanced loans (under certain conditions): Refinanced loans may also qualify for the deduction as long as the original loan also met the deduction requirements.
- Secured Auto Loans (First Lien): The deduction is limited to secured auto loans, with first lien loans being explicitly eligible.
Can I Refinance Later?
Yes, you are able to refinance later and still get a tax deduction option thanks to the One Big Beautiful Bill. You would have to confirm that the vehicle you are refinancing is assembled here in the United States. Your loan originating documents must also be dated after December 31, 2024, for this to qualify for up to $10,000 in possible tax deductions.
What Is the Maximum Annual Deduction?
The maximum annual car loan tax deduction is $10,000 for qualifying Americans buying new cars between 2025 and 2028. Per the IRS, your yearly deduction begins to phase out for taxpayers with modified adjusted gross income over $100,000 ($200,000 for joint filers), so if you make more than that, you will not likely see as much/any savings. If you have an individual MAGI of $150,000 or are a joint filer with a MAGI over $250,000, you no longer qualify for any interest deductions.
Does Income Affect Eligibility?
Yes! Income will affect your eligibility for a car loan tax deduction. Depending on your annual income or household income, the savings from this incentive may not apply to you. As we covered above, the MAGI for individuals filing needs to be under $150,000 for you to be able to deduct interest payments for a qualifying auto loan on your 2025-2028 taxes. If your household is at $250,000 MAGI or above, that also disqualifies you from deduction eligibility.
- For every $1,000 your income goes above the limit, the deduction is reduced by $200.
- The limit for this deduction is $100,000 ($200,000 for joint filers), and a complete phase-out of the tax deduction is once your income hits $150,000 MAGI or a household reporting of $250,000.
Does the EV Tax Credit Also Apply?
Yes, you are also able to get an EV tax credit alongside the car loan tax deduction when shopping for a U.S.-assembled vehicle this year. Remember, the EV tax credit is up to $7,500 for new EVs and $4,000 for used models and expires September 30, 2025. However, to qualify for the Made-in-America Car Loan Tax Deduction, the car you buy must be brand-new. Regardless, the EV tax credit is another thing to look at, especially when purchasing an ID.4 from Volkswagen, which our team at Central Volkswagen will be happy to show you. You also want to remember that your electric vehicle purchase must be personal for this to apply to you. For any tax questions, please refer to the guidance of a certified tax expert.
Speak to a Financing Expert Today
As soon as you are ready to shop for new cars, you can speak with one of our financing experts here at Central Volkswagen in Plainfield, CT. We are here to help with information on car loan tax deductions and EV credits for our vehicles. You can always come in and test drive any of our cars to see which one best fits your lifestyle. Whether it is an all-electric Volkswagen, something hybrid, or a fully gas car from Volkswagen, there has never been a better time to buy. Contact us today and we will see you soon!