New federal deduction

The new auto loan interest deduction (the one nobody is talking about)

While the federal EV tax credit got most of the OBBBA headlines (it ended), the same legislation quietly created a brand-new deduction: up to $10,000 per year in deductible auto loan interest on a personal-use vehicle. It's above-the-line (you don't have to itemize), applies to both EVs and gas cars, and most buyers don't know about it yet.

What it's worth in real dollars

The deduction caps at interest paid, not loan amount. To hit the $10,000 cap, you'd need to be paying $10k in interest annually — that's a roughly $140k loan at 7% interest, or a $200k loan at 5%. Most people won't max out.

Realistic scenarios:

Tax savings figures assume a 22% marginal bracket. Higher brackets get proportionally more. Interest amounts decline each year as the loan amortizes (year 5 of a 60-month loan pays far less interest than year 1).

Who qualifies (and who doesn't)

• Loan must be originated after December 31, 2024. Loans from earlier don't qualify, even if you refinanced post-2024 — though refinancing a pre-2024 loan into a new note may qualify the new note. Talk to your CPA.
• Vehicle must be for personal use. Commercial fleet vehicles, rideshare drivers (Uber/Lyft) using the car primarily for work, and business-titled vehicles don't qualify under this deduction (though they may qualify for separate business deductions).
• Income phaseout starts at $100k single / $200k joint MAGI. Full phaseout typically completes by $150k single / $300k joint. If you're in the phaseout range, you get a partial deduction.
• New AND used vehicles both qualify. Unlike the old federal credits, this doesn't care about vehicle age, price, or build location.
• Lease payments do NOT qualify. The deduction is specifically for loan interest on a purchased vehicle. If you lease, you get other benefits but not this one.

How this changes the lease-vs-buy math

Pre-OBBBA, leasing was clearly favorable on most EVs because of the commercial clean vehicle credit pass-through. With that gone AND a new buying-side deduction, the math has flipped toward buying for many shoppers:

• The auto loan deduction effectively reduces your loan rate by 0.5–1.5 percentage points after tax. A 7% loan becomes a ~6% loan in real terms.
• Over the life of a 60-month loan, total tax savings on a typical $40k EV loan run $2,000–$3,000.
• Leases get none of this benefit. The cash discount from the manufacturer is the same either way, but only purchases capture the interest deduction.

See our full lease vs. buy analysis for the broader decision framework.

How to claim it

Your lender issues a 1098-style statement (some lenders are still figuring out the format as of mid-2026 — the IRS hadn't finalized the form when most 2025 loans were originated). Keep your year-end interest summary.

At tax time, the deduction goes on your Form 1040 as an adjustment to income (Schedule 1). Most tax software now includes the deduction in their EV/auto loan flow as of the 2026 filing season. Your CPA should know about it — if they don't, point them to IRS Pub. 535 or the OBBBA section-by-section summary.

Get the loan rate right first

The deduction makes a 7% loan feel like a 6% loan after tax. It does NOT turn a bad rate into a good rate. The biggest factor in total cost is still the underlying rate you negotiate. Get pre-approved from outside lenders before walking into a dealership — captive finance arms are rarely the best deal.

Not tax advice — talk to a CPA before claiming anything close to the income phaseout or to confirm refinanced or restructured loans qualify. Rules can change.