🚗 How the New Car Loan Interest Deduction Works (2025–2028)
For years, personal interest — including interest on car loans — hasn’t been deductible for federal income tax purposes, with the main exception being mortgage interest. The One Big Beautiful Bill Act (OBBBA) changed that. Beginning in 2025, certain taxpayers may deduct interest paid on qualifying car loans. However, the deduction comes with several rules, limits, and eligibility requirements.
📘 Overview of the New Deduction
Under OBBBA, eligible individuals — including those who don’t itemize — may deduct up to $10,000 per year in interest on a qualifying car loan.
This deduction applies for tax years 2025 through 2028.
Phaseout thresholds
The deduction begins to phase out when modified adjusted gross income (MAGI) exceeds:
- $100,000 for single filers
- $200,000 for married filing jointly
The deduction fully phases out when MAGI reaches:
- $150,000 for single filers
- $250,000 for married filing jointly
🚘 Vehicles That Qualify
To qualify for the deduction, the vehicle must meet all of the following:
- Car, minivan, van, SUV, pickup, or motorcycle
- Gross vehicle weight rating (GVWR) under 14,000 pounds
- Manufactured for public road/highway use
- Brand new (not used)
- Final assembly in the United States
You must also report the VIN on your tax return. Vehicles assembled in the U.S. include a VIN code that identifies domestic assembly.
💳 Loan Requirements
To be eligible:
- The loan must be taken out after 2024
- It must be a first‑lien loan secured by the vehicle
- The vehicle must be used for personal purposes
If you refinance, the new loan still qualifies if:
- It remains secured by a first lien on the same eligible vehicle, and
- The new loan’s initial balance does not exceed the prior loan’s ending balance
Loans that do not qualify
- Loans from certain related parties
- Lease financing arrangements
Proof of interest paid
Lenders are required to issue an IRS information return reporting the amount of car‑loan interest you paid during the year. Transitional relief applies for 2025.
📝 Final Thoughts
The new auto‑loan interest deduction may make purchasing a qualifying new U.S.‑assembled vehicle more affordable. But eligibility depends on three key questions:
- Is your income below the phaseout thresholds?
- Does the vehicle qualify under the manufacturing and weight rules?
- Does the loan meet the IRS requirements?
As always, don’t base the entire purchase decision solely on the tax break — in many cases, a used vehicle, foreign‑assembled car, or lease may still make more financial sense.
If you have questions about whether your purchase or loan qualifies, we’re here to help.
📉 NOL Deductions Can Ease the Pain of Business Losses
Businesses with fluctuating income can face significant tax inequities compared to businesses with stable profits. The net operating loss (NOL) deduction helps level the playing field by allowing taxpayers to use business losses to offset income in future years.
📋 What Qualifies as an NOL?
A business incurs an NOL when allowable deductions exceed revenue for the year.
Eligible sources include:
- Business losses from Schedule C or F
- Schedule K‑1 losses from partnerships or S corporations
- Casualty or theft losses from federally declared disasters
- Rental real estate losses (Schedule E)
Expenses that do not count toward NOL
- Net capital losses
- Section 1202 exclusion for qualified small business stock
- Nonbusiness deductions exceeding nonbusiness income
- The NOL deduction itself
- The Section 199A QBI deduction
Individuals and C corporations may claim NOLs. Partnerships and S corporations cannot claim NOLs at the entity level, but owners may claim their share individually.
📊 Limits on NOL Use
Current tax law restricts the annual use of NOLs:
- NOLs may offset up to 80% of taxable income
- Excess NOLs carry forward indefinitely
If NOLs exceed taxable income in the carryforward year, the remainder becomes an NOL carryover. When multiple NOLs exist, they must be applied in the order incurred, oldest first.
⚠️ The Excess Business Loss (EBL) Rule
The Tax Cuts and Jobs Act (TCJA) implemented the Excess Business Loss limitation in 2021, applying at the individual level for owners of partnerships and S corporations (after basis, at‑risk, and passive loss limits).
EBL limits
For 2025, business losses may offset nonbusiness income up to:
- $313,000 (single)
- $626,000 (married filing jointly)
For 2026, these limits decrease to:
- $256,000 (single)
- $512,000 (married filing jointly)
Losses exceeding these thresholds become NOLs carried forward.
Permanency of the EBL rule
The TCJA originally scheduled this rule to sunset after 2026.
However:
- The Inflation Reduction Act extended it through 2028
- OBBBA (2025 legislation) made the rule permanent
🧭 Next Steps
Navigating NOL, EBL, basis, and passive‑activity rules can be complex, especially when multiple limitations apply at once. A strategic analysis can determine when to recognize deductions, how to sequence loss carryforwards, and how upcoming income may interact with existing NOLs.
If you’re facing business losses — or expect variability in future income — reach out to us for guidance on applying these rules to your situation.
