For the first time since 1986, Americans can deduct interest paid on personal auto loans. The One Big Beautiful Bill Act created a new deduction of up to $10,000 per year for interest on loans for new US-assembled vehicles — effective 2025 through 2028. Here's who qualifies, what vehicles count, and what Maryland's position is.
The Tax Reform Act of 1986 eliminated the deduction for personal interest — including auto loan interest — that had existed for decades. The One Big Beautiful Bill Act partially reverses that, creating a new above-the-line deduction of up to $10,000 per year for interest paid on qualifying auto loans for new vehicles assembled in the United States.
This is an above-the-line deduction, available to taxpayers who take the standard deduction as well as those who itemize. It applies to loans taken out to purchase qualifying vehicles and is effective for tax years 2025 through 2028. For a complete overview of all OBBBA changes, see our full OBBBA guide.
New above-the-line deduction for personal vehicle loan interest, up to $10,000 per year. Vehicle must be new and final assembly must occur in the United States. Effective tax years 2025–2028. Income phaseout begins at $100,000 AGI (single) and $200,000 AGI (married filing jointly). Does not apply to business vehicles — those are handled through depreciation and Section 179.
Not every new vehicle purchase qualifies. The deduction has specific requirements:
The US-assembly requirement eliminates many vehicles that American consumers assume are "American made." A significant number of vehicles sold by US brands — Ford, GM, Stellantis — are assembled in Mexico or Canada. Japanese and Korean brands have US assembly plants that may qualify. Always verify the final assembly location of a specific vehicle before assuming the deduction applies. The window sticker (Monroney label) on new vehicles lists the country of final assembly.
The savings depend on the loan amount, interest rate, and your federal tax bracket. With current auto loan rates in the 6% to 8% range for qualified buyers, here's what the deduction is worth for typical Frederick County vehicle purchases:
| Loan Amount | Interest Rate | Yr 1 Interest Paid | Federal Bracket | Federal Tax Saved |
|---|---|---|---|---|
| $35,000 | 6.5% | ~$2,200 | 22% | ~$484 |
| $50,000 | 7.0% | ~$3,400 | 22% | ~$748 |
| $65,000 | 7.5% | ~$4,750 | 24% | ~$1,140 |
| $80,000 | 7.5% | ~$5,850 | 24% | ~$1,404 |
The $10,000 annual cap means higher loan balances at higher interest rates produce the maximum benefit. A $150,000 loan at 7% generates approximately $10,300 in first-year interest — reaching the cap almost immediately. As the loan is paid down over time, the annual interest falls and the deductible amount decreases accordingly.
The deduction phases out for higher-income taxpayers. The phaseout begins at $100,000 AGI for single filers and $200,000 AGI for married filing jointly. Above those thresholds, the deduction is reduced proportionally until it is fully eliminated. For most Frederick County middle-income families this phaseout is not a concern — but higher-income professionals and business owners may see a reduced or eliminated benefit.
It is important to understand that this deduction is specifically for personal vehicles used for personal purposes. If you purchase a vehicle and use it for your business, the appropriate deduction is through:
Business owners who purchase a vehicle for both business and personal use must allocate the deductions between the two methods — the personal auto loan interest deduction for the personal use portion and business depreciation/expense deductions for the business use portion. This allocation requires careful tracking of business vs personal mileage.
As of the date of publication, Maryland has not confirmed whether it will conform to the federal auto loan interest deduction. Maryland's General Assembly would need to pass legislation adopting the provision for it to reduce your Maryland taxable income.
Given that Maryland has not conformed to the no-tax-on-tips or no-tax-on-overtime provisions, there is no guarantee Maryland will adopt the auto loan interest deduction either. We are monitoring Maryland's legislative response to the OBBBA and will update clients when Maryland's position is confirmed. For now, assume the deduction reduces federal taxable income only. See our Maryland vs federal tax differences article for context on how Maryland handles federal tax law changes.
Until Maryland passes conforming legislation, the auto loan interest deduction reduces your federal return only. Do not adjust Maryland withholding or estimated payments based on this deduction. Your Maryland tax on the same income remains unchanged until Maryland acts.
Every new vehicle sold in the US is required to have a Monroney label — the window sticker — that discloses the country of final assembly among other information. Before finalizing a vehicle purchase with the intent to claim the interest deduction, verify the final assembly location is listed as the United States. Your dealer can also confirm this, but verify independently.
The deduction applies to interest paid on a qualifying auto loan regardless of the lender — dealership financing, bank loan, or credit union loan all qualify as long as the loan was used to purchase a qualifying vehicle. Shop for the best rate — the deduction makes financing slightly more attractive than it otherwise would be, but a lower interest rate still saves more money over the life of the loan than the tax deduction on a higher rate.
The auto loan interest deduction applies to purchase loans — not lease payments. If you lease a vehicle, even a US-assembled new vehicle, the lease payments are not eligible for this deduction. Lease payments remain non-deductible for personal vehicles under current law.
Yes — if the vehicle qualifies and your income is within the phaseout thresholds, you can deduct the interest paid from the date of purchase through December 31, 2025 on your 2025 federal return. The deduction is for interest actually paid during the tax year, so a March 2025 purchase gives you approximately 9 months of qualifying interest for the 2025 return.
The deduction is claimed by the taxpayer who paid the interest — typically the primary borrower on the loan. If you and your spouse are both on the loan and file jointly, the household claims the deduction together on your joint return subject to the $10,000 cap. Co-borrowers who file separately each claim only the interest they actually paid.
The IRS guidance does not explicitly limit the deduction to one vehicle per taxpayer — the cap is $10,000 of total qualifying auto loan interest per return. If you have two qualifying vehicle loans, you can deduct the combined interest up to $10,000 total. However, each vehicle must independently meet the new and US-assembled requirements.
You need the annual interest statement from your lender (similar to a mortgage interest Form 1098, though lenders may report auto loan interest differently), documentation confirming the vehicle's final assembly location, and proof the vehicle was purchased new. Keep all loan documents and the vehicle's window sticker or title paperwork as supporting documentation.
Roy Cogliandolo, CPA
Mercer Flanagan · Frederick, MD · April 2026
The auto loan interest deduction is straightforward but requires the right documentation and confirmation that your vehicle qualifies. We review this for every individual client with a qualifying purchase.
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