Plain-English answers about the Qualified Passenger Vehicle Loan (QPVL) interest deduction created by the One Big Beautiful Bill Act (OBBBA) and the IRS Proposed Regulations REG-113515-25.
Q: What is the auto loan interest deduction under the One Big Beautiful Bill Act?
A: The One Big Beautiful Bill Act (OBBBA) created a new above-the-line deduction for interest paid on a qualified passenger vehicle loan (QPVL). For tax years 2025 through 2028, eligible taxpayers can deduct up to $10,000 of interest per tax return per year on a loan used to purchase a new, U.S.-assembled personal-use vehicle under 14,000 lbs GVWR, secured by a first lien. The deduction is available whether you itemize or take the standard deduction and is reported on Schedule 1-A.
Q: Which vehicles qualify for the deduction?
A: Only new vehicles with final assembly in the United States qualify. The vehicle must have a gross vehicle weight rating (GVWR) under 14,000 pounds, be purchased for personal use, and the loan must be secured by a first lien on the vehicle. Used vehicles, leased vehicles, and vehicles assembled outside the U.S. do not qualify. Verify final assembly using the NHTSA VIN decoder before purchase.
Q: What is the maximum deduction amount?
A: The maximum deduction is $10,000 of qualified auto loan interest per tax return per year. This cap applies per return, not per taxpayer — married couples filing jointly receive a single $10,000 cap, not $20,000. The deduction is available for tax years 2025 through 2028 under current law.
Q: How does the income phaseout work?
A: The deduction phases out by $200 for every $1,000 of modified adjusted gross income (MAGI) above the threshold. The phaseout begins at $100,000 MAGI for single filers and $200,000 for married filing jointly, and reaches zero at $150,000 (single) or $250,000 (joint). For example, a single filer with $130,000 MAGI is reduced by $6,000, leaving a maximum deduction of $4,000 instead of $10,000.
Q: What financed amounts count toward the qualifying loan principal?
A: Under the proposed IRS regulations, the qualifying principal includes the vehicle purchase price plus items customarily financed that directly relate to the vehicle: vehicle service plans, extended warranties, sales tax, title and registration fees, dealer documentation fees, and similar vehicle-related fees. Negative equity from a trade-in, collision and liability insurance, cash-out amounts, GAP products (currently unclear), and unrelated property such as trailers or boats do not qualify.
Q: How is negative equity equity from a trade-in handled?
A: When negative equity is rolled into a new loan, the down payment is applied against the negative equity first. Only the net unoffset negative equity reduces the qualifying loan principal. For example, a $50,000 vehicle with $6,000 of negative equity and a $4,000 down payment yields a qualifying principal of $48,000: the $4,000 down payment offsets $4,000 of the $6,000 negative equity, leaving $2,000 of net disqualified amount excluded from the principal.
Q: Is GAP insurance interest deductible?
A: GAP insurance and GAP waiver products are not specifically addressed in the current IRS Proposed Regulations REG-113515-25. Industry groups have formally requested IRS clarification. Until final regulations are issued, treat GAP eligibility as uncertain and consult your tax advisor before relying on it in your deduction calculation.
Q: Do I need to itemize to claim this deduction?
A: No. The auto loan interest deduction is an above-the-line deduction available whether you itemize or take the standard deduction. It is reported on Schedule 1-A and reduces your taxable income directly, making it valuable for the majority of taxpayers who claim the standard deduction.
Q: Do leases or used-car loans qualify?
A: No. Lease payments do not qualify because a lease is not a purchase secured by a first lien. Used vehicles also do not qualify under the current statute — the deduction applies only to new vehicles. Loans from related parties (for example, a family member) are also excluded.
Q: How is this calculator’s estimate produced?
A: The calculator builds the qualifying loan principal by adding eligible financed items to the vehicle price, applying the down payment first against any negative equity, then subtracting any remaining net disqualified amount and surplus down payment. It computes the standard amortized interest schedule for the loan term and entered APR, applies your MAGI-based deduction cap, multiplies by your marginal tax rate, and reports estimated tax savings for Year 1 and the full loan. All numbers are estimates based on IRS Proposed Reg REG-113515-25 and are not tax advice — consult a qualified tax professional.
