The One Big Beautiful Bill Act (OBBBA) features many middle class family deductions. The ability to deduct interest from an auto loan without business use is something completely new in tax law.
But please don’t think that its automatic, and run out to buy the luxury vehicle of your choice. There are several issues on this deduction that must be considered, which include…
1 – The first $10,000 in auto loan interest will be deductible on your return from 2025 to 2028.
2 – This deduction is only available on the purchase of a “Qualified Vehicle” which is defined as one under 14,000 lbs. that has undergone final assembly inside the United States.
3 – It must be a new vehicle. Anything used does not qualify for the deduction.
4 – The deduction is available whether you itemize or take a standard deduction.
5 – It begins phasing out for single taxpayers with an adjusted gross income above $100K. Married filers begin the phase out over $200K.
Let me leave you with this…
This is another one of those tax deductions that make for great headlines. But in reality, it’s going to be difficult for most entrepreneurs to take advantage of it.
The first difficulty is that it must be a Qualified Vehicle with final assembly in the US. You won’t get it on the purchase of a Porsche, a Lamborghini, or even an Audi. Also, it must be brand new, straight off the dealer floor.
But the phase out will be the killer for most. How many entrepreneurs are married who have an income below $200K annually?
Again, this will make for great headlines. But in reality, it probably won’t affect many returns.
One other thing is that everyone with an auto loan will probably now get a 1098 at the end of the year to substantiate the deduction, in the same manner that we get documentation for interest deductions on home loans. The IRS hasn’t come out with anything on this yet, but I’d bet you dimes to donuts that it’s forthcoming.
Of course, none of this will change anything in regards to business mileage deductions. Any vehicles you buy will still be just as deductible at the entity level.
At the end of the day, making sure that as much of that vehicle can be deducted will always be the trick, whether it’s financed or not.
This is the fifth column in my series on the changes that affect entrepreneurs in the new tax bill.
We’re all going to get through this. Let’s get through it together.
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