For the first time in 40 years, you now have the ability to deduct car loan interest off of your taxes. As a financial advisor in Lexington, Kentucky, I want to walk you through the details, because there are a few things you need to know before you assume this applies to your situation.

The One Big Beautiful Bill Act made this possible. From 2025 through 2028, interest paid on a qualifying personal vehicle loan is deductible up to $10,000 per year. And it is above-the-line, meaning you do not have to itemize. You can stack it right on top of your standard deduction.

This is week four of our OBBBA series on The Groundwork.

WHAT YOU'LL LEARN

•      For the first time since 1986, interest on a personal auto loan is now deductible

•      This is an above-the-line deduction: no itemizing required. It stacks on top of your standard deduction

•      From 2025 through 2028, you can deduct up to $10,000 per year in qualifying interest

•      Vehicle requirements: must be new, not used, with final assembly in the United States

•      Qualifying vehicle types: cars, minivans, vans, SUVs, pickup trucks, and motorcycles for personal use only

•      Income phase-out: begins at $100,000 for single filers and $200,000 for married filing jointly

•      Documentation: unlike a mortgage, you will likely not receive a form from your lender. You may need to track interest through your own statements

•      U.S. final assembly requirement: not every vehicle qualifies, even from major brands. Confirm before you sign

•      If you already purchased a qualifying new vehicle in 2025, you may have deductible interest already. Worth pulling your statements

•      The math reality: at a 7% loan rate, you would need to finance $140,000 to $145,000 to hit the $10,000 cap. Most buyers financing $40,000 to $60,000 will see a real deduction closer to $2,500 to $4,000

•      The deduction is highest in early loan years when more of each payment goes to interest, and decreases as you pay down the balance

•      Practical takeaway: if you are buying a new vehicle between now and 2028, track your interest. This is not a reason to buy a car you do not need, but if you are in the market, it is a real benefit worth accounting for

Need help understanding what a car purchase means for your overall financial picture? That is a conversation worth having.

If you are in Lexington, Central Kentucky, or anywhere across the Bluegrass, and you want clarity on how this deduction affects your situation, whether you should finance or pay cash, or how a vehicle purchase fits into your broader financial plan, I would be honored to sit down with you and walk through it.