The new law only applies for Federal taxes (Form 1040).
Wisconsin has not said if the interest is tax deductible for WI taxes.
If you’re planning to or did buy a new car, there’s a new tax deduction starting in 2025 that lets you deduct the interest you pay on your car loan.
Here’s a quick and simple breakdown:
What’s the New Deduction?
From 2025 to 2028, you can deduct interest paid on a car loan for a qualified vehicle purchased for personal use. Here are the details:
- How Much Can You Deduct?
- Up to $10,000 per year.
- Income Limits Apply:
- The deduction phases out if your income is over:
- $100,000 (single filers).
- $200,000 (joint filers).
- The deduction phases out if your income is over:
- What Doesn’t Qualify?
- Lease payments do not qualify for this deduction.
What Qualifies as Deductible Interest?
To claim the deduction, the interest must meet these requirements:
- Be from a loan originated after December 31, 2024.
- Be for a vehicle you purchased new (used vehicles don’t qualify).
- Be for a vehicle used for personal purposes (not for business or commercial use).
- The car loan must be secured by the vehicle (there must be a lien on the car).
- Interest on refinanced loans may also qualify, but only for the refinanced amount.
What Counts as a Qualified Vehicle?
To qualify, the vehicle must meet these criteria:
- It must be a car, minivan, SUV, pickup truck, van, or motorcycle.
- It must weigh less than 14,000 pounds.
- It must be assembled in the United States.
To check if a vehicle was assembled in the U.S., you can:
- Look at the information label on the vehicle at the dealership.
- Use the Vehicle Identification Number (VIN).
- Check the National Highway Traffic Safety Administration (NHTSA) VIN Decoder.
Who Can Claim This Deduction?
- Both taxpayers who itemize deductions and those who don’t can claim this deduction.
- You must include the VIN number on your tax return for any year you claim the deduction.
What Lenders Must Do
Lenders (or whoever receives the interest) must:
- File reports with the IRS showing how much interest they received.
- Provide you with a statement listing the total interest you paid during the year.
The IRS will also provide special guidance and transition relief in 2025 for lenders adjusting to the new reporting rules.
This new deduction is a great perk if you’re buying a new car for personal use. Be sure to keep track of your loan and interest payments, check the eligibility of your vehicle, and take advantage of this tax-saving opportunity!
