New Car, New Deduction: How Michigan Residents Can Save with the 2025–2028 Auto Loan Interest Tax Break

If you’ve been thinking about buying a brand-new car, truck, or SUV, there’s a new tax break you’ll definitely want to know about—especially if you live here in Michigan where driving is a way of life.

Starting in 2025, a new federal tax deduction will allow many taxpayers to write off the interest paid on personal vehicle loans. It’s a temporary opportunity, but a valuable one that could save you up to $10,000 per year through 2028. As a Michigan CPA, I’m here to walk you through what this deduction means, how to qualify, and how to make the most of it.

What’s the New Car Loan Interest Tax Deduction?

The U.S. government is temporarily allowing taxpayers to deduct interest paid on a qualified personal auto loan for brand-new vehicles. This means if you finance your next vehicle purchase, a portion (or all) of the interest you pay each year could reduce your taxable income.

The deduction is:

• Available from 2025 through 2028

• Capped at $10,000 per year

• Phased out for higher incomes

• Only applicable to loans on new, U.S.-assembled vehicles

That’s a big deal—especially when you consider how many families in Michigan depend on reliable transportation and often choose to finance their vehicles.

Why This Deduction Matters for Michigan Residents

Let’s face it—owning a car in Michigan isn’t optional. From the rural roads of Livingston County to the busy suburbs around Detroit and Grand Rapids, we drive year-round through all kinds of weather. And whether you’re commuting to work, hauling the kids to sports practice, or heading north for the weekend, reliable transportation is a necessity—not a luxury.

This deduction gives us a chance to recoup some of the rising costs of car ownership, especially with interest rates still higher than they were a few years ago. If you’re planning to purchase a new car after December 31, 2024, this is something you’ll want to plan for—and I can help you do just that.

Who Qualifies for the Car Loan Interest Deduction?

This deduction is available to both single and joint filers who meet certain income requirements:

• Full deduction available for incomes up to $100,000 (single) or $200,000 (married filing jointly)

• The deduction phases out as income rises above these limits

• It’s not necessary to itemize deductions—you can claim this even if you take the standard deduction

As your CPA, I’ll help you determine if your income qualifies and how much of your auto loan interest is deductible each year. It’s important to track this properly to ensure you’re maximizing your tax benefits.

What Kind of Vehicles and Loans Qualify?

Not every vehicle or loan qualifies, so let’s break this down clearly.

To be eligible, your loan must:

• Be originated after December 31, 2024

• Be secured by the vehicle itself

• Be for a brand-new vehicle only

• Be for personal use only (not business or commercial)

Leases don’t count, and neither do loans on used vehicles. That means this deduction is strictly for new vehicle purchases with a qualifying loan.

Your vehicle must also:

• Be a car, SUV, minivan, van, pickup truck, or motorcycle

• Weigh under 14,000 pounds

• Be assembled in the United States

That last point is key here in Michigan. We’re the heart of the American auto industry. Brands like Ford, GM, and Stellantis (Chrysler) all manufacture vehicles right here in our state. So if you’re considering buying local and supporting Michigan jobs, you’re already one step closer to qualifying.

How to Claim the Deduction

Claiming this deduction is simple, but there are a few steps to get it right:

1. Track your loan interest – Your lender will provide a statement showing the total interest paid each year.

2. Provide your Vehicle Identification Number (VIN) – You’ll need to include this on your tax return, so keep your paperwork handy.

3. Make sure your lender reports to the IRS – Most major lenders already do, but it’s worth confirming.

Even if you normally don’t itemize your deductions, you can still claim this one, which makes it even more valuable for many Michigan families.

What If You Refinance?

If you refinance a qualifying car loan later on, the interest may still be eligible—as long as the refinanced amount doesn’t exceed the original loan and the vehicle still qualifies. This can be a helpful strategy if interest rates drop during the 2025–2028 window.

Need help figuring out if a refinance affects your deduction? Just give me a call—I’m happy to take a look at your loan terms and provide guidance specific to your situation.

Tips for Michigan Taxpayers to Maximize This Deduction

Here are a few things you can do to make sure you’re getting the most out of this opportunity:

1. Time Your Purchase Wisely

Since this deduction only applies to loans originated after December 31, 2024, it might make sense to delay your vehicle purchase until early 2025—especially if your current car can hold out a bit longer.

2. Buy American-Assembled Vehicles

Many Michigan residents already buy vehicles made right here in-state, but double-check that your new car is assembled in the U.S. to ensure eligibility. This is also a great way to support local jobs and our economy.

3. Avoid Leases and Used Cars

While leasing may be attractive for some drivers, this deduction is only for financed purchases of new cars. Used cars—no matter how new they seem—don’t qualify.

4. Keep Detailed Loan Records

Be sure to save your loan paperwork and lender statements that detail how much interest you’ve paid. The IRS may require proof, and proper documentation will make your tax filing smoother.

5. Talk to a CPA (like me!)

This deduction may seem simple on the surface, but depending on your income level, tax situation, or other deductions, there may be nuances. I can help you figure out how this new rule fits into your overall tax strategy—and how to legally reduce your tax liability.

Planning Ahead: 2025–2028 Is a Window of Opportunity

This deduction isn’t permanent. It’s currently available only for tax years 2025 through 2028. That gives you a four-year window to take advantage of this benefit.

If you plan to buy multiple vehicles during that time (say, one in 2025 and another in 2027), you may be able to claim the deduction more than once—up to the $10,000 annual cap per year.

This is a rare opportunity to receive tax relief for something most of us in Michigan need anyway: reliable transportation.

Final Thoughts

Living and working in Michigan, I know how important vehicles are to our daily lives. From navigating snowy backroads to enjoying a summer drive to Lake Michigan, cars are part of our culture and our economy.

This new deduction gives us a chance to ease the financial burden of car ownership—but only if we plan ahead and take advantage of it the right way.

As your local CPA, I’m here to help you do just that.

Let’s talk about your tax strategy, future vehicle purchases, and how to reduce your overall tax bill in the years ahead. I’d be happy to walk through this with you and help you make the best decisions for your family and your finances.

Have questions or want help planning your next big purchase?
📞 Call me at Persitz CPA or head over to https://persitzcpa.com to schedule a consultation.

Let’s make sure your next car works for your life—and your taxes.