Can my client deduct car loan interest under the 2025 tax law?

What qualifies

IRC §163(h)(4) takes "qualified passenger vehicle loan interest" out of nondeductible personal interest for taxable years beginning after December 31, 2024 and before January 1, 2029. The interest must be on a loan that:

• was incurred after December 31, 2024
• paid for the vehicle and is secured by a first lien on it
• bought the vehicle for personal use

The vehicle must be new (its original use starts with the taxpayer) and must be a car, minivan, van, SUV, pickup truck or motorcycle with a gross vehicle weight rating under 14,000 pounds. Its final assembly must have happened in the United States.

These loans don't count: fleet-sale loans, loans for commercial vehicles not used personally, lease financing, and loans for salvage-title vehicles or vehicles bought for scrap or parts.

Limits

• Dollar cap: $10,000 of interest per taxable year.
• Income phase-out: the deduction drops by $200 for each $1,000, or part of $1,000, of modified AGI above $100,000 ($200,000 on a joint return).

Example: a single filer with $8,000 of qualifying interest and modified AGI of $112,500 is over by $12,500. That counts as 13 steps of $1,000 because partial steps count, so the reduction is 13 × $200 = $2,600 and the deduction is $5,400.

VIN on the return

The interest doesn't qualify unless the vehicle identification number is on the return for the year.

Standard deduction or itemized

The IRS says the deduction is available whether the taxpayer takes the standard deduction or itemizes.