I’ve said in the past that you have to be careful choosing a used car over a new car. You might not be saving much money.
New car loans generally offer a lower interest rate than used car loans. New car loan interest rates range from 4% to 7% and at times some manufacturers even offer 0% interest on loans. Interest rates on a used car can range from 11% to 15% and even higher if you have poor credit.
For me, I’ve always tried to find a deal with 0% interest when I needed to buy a new vehicle, but those deals are not always available. But what if you could deduct your car loan interest on your taxes? The new One Big Beautiful Bill Act recently signed into law does just that.
From 2025-2028 the new tax law will allow new car buyers to deduct up to $10,000 of annual interest paid on new car loans from their income and you won’t have to itemize to claim the deduction. For anyone with adjusted gross income over $100,000 ($200,000 if married filing jointly) the deduction is decreased $200 for each $1,000 of income over the thresholds.
Single
| AGI | Deduction Limit |
|---|---|
| $100,000 or less | $10,000 |
| $110,000 | $8,000 |
| $120,000 | $6,000 |
| $130,000 | $4,000 |
| $140,000 | $2,000 |
| $150,000 | $0 |
Married Filing Jointly
| AGI | Deduction Limit |
|---|---|
| $200,000 or less | $10,000 |
| $210,000 | $8,000 |
| $220,000 | $6,000 |
| $230,000 | $4,000 |
| $240,000 | $2,000 |
| $250,000 | $0 |
What’s the catch? To qualify, the car must be new with a final assembly in the United States. So, the deduction rules out imports. This is obviously indented to support American manufacturing and American auto workers.
The vehicle must be for your personal (i.e., non-business, non-commercial) use and can include cars, trucks, vans, sport utility vehicles and pickup trucks.
This should add even more incentive to go buy a new Ford Ranger.
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