New Tax Break: Deducting Auto Loan Interest in 2023

Taxpayers who purchased a new vehicle in 2023 may qualify for a new deduction on their taxes — even if they're not itemizing. However, not everyone is eligible for this lucrative tax break.

The new tax provision, part of the 2023 tax code changes, allows eligible car buyers to deduct the interest paid on their auto loans. This deduction can be claimed regardless of whether the taxpayer itemizes their deductions or takes the standard deduction.

To qualify, the vehicle must have been purchased new in 2023 and have a gross vehicle weight rating of 6,000 pounds or less. The deduction is limited to $2,500 in interest paid per year, and the income phase-out ranges begin at $150,000 for single filers and $300,000 for joint filers.

This new provision is part of a broader effort by lawmakers to provide tax relief for middle-class Americans facing the rising costs of vehicle ownership. With the average new car price now exceeding $45,000, the ability to deduct interest can provide meaningful savings at tax time.