When it comes to tax planning, vehicles are often one of the trickiest assets to navigate. How much can you deduct? What limits apply? With the OBBBA rolling out new rules for 2025 and beyond, there are some important changes every car owner and business needs to know. Here are the details.

What is the One Big Beautiful Bill Act?

On July 4, President Trump signed a sweeping budget and new tax law that contains major changes to business and individual taxes, deductions, credits, and an extension of certain Tax Cuts and Jobs Act (TCJA) provisions. Check out our comprehensive summaries of the changes in our OBBBA Resource Center.

Background: What is vehicle depreciation? 

Vehicle depreciation is the decrease in a vehicle’s value over time, and for tax purposes, it determines how much of the vehicle’s cost you can deduct each year. Navigating these deductions can be tricky: how much can you really write off, and what limits apply? 

OBBBA Changes Vehicle Depreciation Rules for 2025

Passenger Automobiles, Trucks & Vans (≤ 6,000 lbs. Gross Vehicle Weight Rating- GVWR)

For light vehicles primarily used for business (over 50%), the IRS caps annual deductions under the “luxury auto” rules.

2025 depreciation caps:

• Year 1: $20,200
• Year 2: $19,600
• Year 3: $11,800
• Each subsequent year: $7,060

If you don’t take a special depreciation election, the Year 1 cap drops to $12,200.

Heavy SUVs, Trucks & Vans (> 6,000 lbs. GVWR)

Heavier vehicles receive more favorable tax treatment. They are generally exempt from the “luxury auto” caps and can be fully or partially expensed under Section 179.

• 2025 SUV limit (6,000–14,000 lbs. GVWR): $31,300
• Amounts above the 179 limit for SUVs can be deducted via 100% bonus depreciation (if placed in service after January 19, 2025) 

For other vehicles over 6,000 lbs., and SUVs over 14,000 lbs., the Section 179 limitation is as follows:

• Deduction limit: $2.5 million
• Phase-out begins at: $4 million 

New: Car Loan Interest Deduction (Sec. 70203 of OBBBA)

Another change included in the bill is a new deduction for car loan interest. Starting in 2025, individuals get access to a brand-new tax break: a deduction for interest paid on qualifying car loans. This provision applies through 2028 and is aimed at easing the cost of personal vehicle ownership.

Key Highlights

• Deduction amount: Up to $10,000 per year
• Income phase-out: Begins at $100,000 MAGI ($200,000 for joint filers)
• Eligible taxpayers: Both itemizers and non-itemizers

Requirements for a Qualified Loan

• Loan must be originated after December 31, 2024
• Used to purchase a new personal-use vehicle (not business/commercial; used vehicles don’t qualify)
• Loan must be secured by a lien on the vehicle
• If refinanced, interest on the refinanced balance remains eligible

What Counts as a Qualified Vehicle?

A car, SUV, van, pickup, or motorcycle that:

• Weighs less than 14,000 lbs.
• Underwent final assembly in the United States

You can confirm U.S. assembly by:

• Checking the dealer’s information label
• Reviewing the VIN
• Using the NHTSA VIN Decoder

Reporting Rules

• Taxpayers must report the vehicle identification number (VIN) on their return each year the deduction is claimed.
• Lenders must file annual information returns with the IRS and provide borrowers with interest statements (similar to mortgage interest reporting).
• The IRS has promised transition relief for 2025 to help lenders adjust to the new reporting requirements.

FAQs

1. Can I deduct interest on a leased vehicle? No. The deduction only applies to interest paid on loans used to purchase a qualified personal-use vehicle. Lease payments do not qualify.
2. Are used cars eligible for the new loan interest deduction? No. Only new personal-use vehicles are eligible for the new interest deduction.
3. Do I need to report the VIN on my tax return? Yes. You must include the vehicle identification number (VIN) for each year the deduction is claimed. Accurate reporting is part of proper documentation, which is essential for both business and personal vehicle deductions.
4. Does the deduction apply to business vehicles? No. The loan interest deduction is only for personal-use vehicles. Business vehicles are eligible for other tax benefits including accelerated deductions under both Section 179 and bonus depreciation.
5. What if I refinance my vehicle loan? Interest on the refinanced loan generally remains eligible for the deduction, as long as the vehicle and loan meet the original requirements. Keep careful records to ensure the IRS can verify eligibility.
6. Do state tax rules follow this deduction? Not always. State tax rules may differ, so check whether your state conforms to federal changes before claiming the deduction.

Bottom line: Whether you’re buying a business truck or financing a personal car, 2025 brings fresh opportunities to reduce your tax bill.