If you purchased a new vehicle recently — or are considering one — a new tax law may affect your 2025 tax return.

The One Big Beautiful Bill introduced a new federal deduction that may allow some taxpayers to deduct interest paid on a car loan. This is a meaningful change, especially for Maryland residents navigating rising vehicle and financing costs.

Here’s what the deduction means, who may qualify, and what to gather before tax time.

What Is the New Car Loan Interest Deduction?

Under the One Big Beautiful Bill, eligible taxpayers may be able to deduct interest paid on a loan used to purchase a new, U.S.-assembled vehicle.

This is a federal deduction — not a Maryland-only rule — but it still impacts Maryland tax planning because federal taxable income flows into your Maryland return.

Key highlights:

• Applies to new vehicles only

• Vehicle must be assembled in the United States

• Interest must be paid on a qualified auto loan

• Can be claimed even if you take the standard deduction

• Subject to income-based phaseouts

Who May Qualify for the Car Loan Interest Deduction?

You may qualify if:

• You purchased a new vehicle (not used)

• The vehicle was financed with a loan

• The vehicle is primarily for personal use

• The vehicle was assembled in the U.S.

• Your income falls within the allowed phaseout limits

This deduction does not replace business vehicle deductions. If a vehicle is used for business, different tax rules apply and should be reviewed separately.

If you’re unsure how your vehicle is classified, this is something we routinely review as part of our Federal and Maryland tax preparation services.
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How Much Interest Can Be Deducted?

The deduction is capped annually and may be reduced or phased out depending on income and filing status. The exact tax benefit varies from person to person.

This is why planning matters. Two people who buy the same car may see very different tax results depending on income, filing status, and loan structure.

What You’ll Need to Claim the Deduction

If you think this deduction applies to you, gather the following:

• Vehicle VIN

• Auto loan interest statement from your lender

Providing this information early helps ensure nothing is missed when your return is prepared.

If you’re already working with us for bookkeeping or tax prep in Maryland, including these details with your documents allows us to review eligibility upfront.

What This Means for Maryland Taxpayers

This deduction is a good example of why tax details matter. While the rule itself is federal, it affects Maryland residents directly by reducing federal taxable income — which can influence overall tax outcomes.

Whether you’ve already purchased a vehicle or are planning ahead, reviewing loan details early can help avoid missed deductions and last-minute stress.

If you have questions or want help reviewing how this applies to your situation, we’re happy to help.

Frequently Asked Questions About the New Car Loan Interest Deduction

Can I deduct interest on a used car loan in Maryland?
No. This deduction only applies to new vehicles. Used vehicle loans do not qualify under the current federal rules.

Does this apply to business vehicles?
No. This specific deduction applies to personal-use vehicles. Business vehicles follow separate depreciation or mileage rules.

Do Maryland taxpayers need to itemize to claim this deduction?
No. The deduction may be claimed even if you take the standard deduction, assuming all other requirements are met.

Is there an income limit?
Yes. Income-based phaseouts apply, which may reduce or eliminate the deduction depending on your filing status and income.

What documents should I provide my accountant?
You’ll need the VIN and your auto loan interest statement from the lender.