Uncle Sam Might Help Pay for Your Next Car

Here's something most people don't know yet: if you finance a new car this year, part of what you pay in interest could lower your federal taxes. It's a new deduction written into federal law, sitting there waiting for you to claim it.

Sound too good to be true? It's not. Let's break it down.

The Short Version

Starting with loans from 2025 through 2028, you can deduct up to $10,000 a year in interest paid on a new car loan, as long as the vehicle had its final assembly in the US. It doesn't matter if you take the standard deduction on your taxes. This one applies on top of it.

That's the whole idea behind it: you finance a new car, you pay interest like you always do, and now some of that interest may lower what you owe the IRS. If you're a Louisiana resident, it also lowers your state taxes, since our state tax is tied directly to your federal numbers.

Do You Qualify?

A few rules apply, and they're worth knowing before you shop:

• • The vehicle has to be new. Used cars and leases don't count.
  • It has to be assembled in the United States.
  • It's for personal use, not a work fleet vehicle.
  • The loan has to start after December 31, 2024.
  • If you're single and earn over $100,000, or file jointly and earn over $200,000, the deduction starts to phase out.
  • Federal savings (22%): $440
  • Louisiana savings (3%): $60
  • Total savings: $500
  • Federal savings (22%): $2,200
  • Louisiana savings (3%): $300
  • Total savings: $2,500

Now Let's Talk Money

This is where it gets fun. Let's say you finance a Ford Ranger for $35,000 with OnPath at a competitive rate. In your first year, you'd pay somewhere around $2,000 in interest (depending on the rate you get). Here's what that looks like at tax time if you're in the 22% federal bracket:

$2,000 in interest paid

 Estimated federal tax savings: about $440 

Let's say you've got a bigger loan, or a higher rate, and you hit closer to the max $10,000 in interest for the year:

$10,000 in interest paid

 Estimated federal tax savings: about $2,200 

You were likely going to buy the car anyway. Now you're just getting some lagniappe at tax time.

Which Cars Qualify?

For the 2026 model year, more than 100 vehicles are assembled here in the U.S. Some of the most popular picks:

American Brands
Cadillac Escalade, Chevrolet Silverado and Tahoe, Ram 1500, Ford F-150, Ford Bronco, Ford Explorer, Jeep Wrangler and Grand Cherokee, Lincoln Navigator, Tesla Model 3, Model Y

Japanese Brands
Honda Accord, Civic, CR-V, and Pilot, Toyota Camry, Tacoma, and Tundra, Subaru Outback and Ascent, Nissan Rogue and Pathfinder

Korean Brands
Hyundai Santa Fe and Tucson, Kia Sorento and Sportage

European Brands
BMW X3 through X7, Mercedes-Benz GLE and GLS, Volkswagen Atlas

Production sometimes splits across plants, even within the same model, so the safest way to confirm a specific vehicle qualifies is to check its window sticker or VIN. 

The NHTSA's VIN Decoder tool (nhtsa.gov/vin-decoder) provides this information directly. Enter the VIN and follow the prompts to confirm whether the vehicle's plant of manufacture was located in the United States.

 Shopping for a Car? Check Our Auto Loan Rates

 Planning a purchase? See what OnPath offers before you head to the dealership. Check current auto loan rates and apply at beonpath.org/borrow/personal/auto-loans. We also work with dealers across the region to make buying your next car easier. Rates and terms depend on your credit history and other factors, and loans are subject to approval. 

Before your next test drive, take a few minutes to understand your financing and whether the vehicle you want could qualify for this tax benefit. A little preparation can help you make a more informed purchase.

This article is for general information only and is not tax advice. Please consult a tax professional about your situation. 

Important Information About the Vehicle Loan Interest Deduction

What the deduction is. Under federal tax law, eligible taxpayers may deduct up to $10,000 per tax year of qualified passenger vehicle loan interest for tax years 2025 through 2028. The deduction is available whether or not you itemize. It reduces taxable income; it is not a tax credit, refund, or rebate, and it does not reduce your loan balance, payment, or interest rate. Your actual tax savings, if any, depend on your income, tax bracket, and other factors, and for most borrowers will be substantially less than the amount of interest deducted.

Loan requirements. The loan must be incurred after December 31, 2024, to purchase the vehicle, and must be secured by a first lien on that vehicle. Leases do not qualify. Only interest attributable to the vehicle purchase and certain related items may qualify; interest on amounts financed for unrelated products or services may not be deductible. Refinanced loans may qualify only in limited circumstances.

Vehicle requirements. The vehicle must be new (its original use must begin with you), must have undergone final assembly in the United States, must be a car, minivan, van, SUV, pickup truck, or motorcycle with a gross vehicle weight rating under 14,000 pounds, and must be purchased for personal use. Used vehicles and vehicles used for business, fleet, or commercial purposes do not qualify. A vehicle's brand does not determine where it was assembled; you can check final assembly location on the vehicle's window label or using the vehicle identification number (VIN).

Income limits. The maximum deduction is reduced by $200 for each $1,000 (or fraction thereof) of modified adjusted gross income above $100,000 ($200,000 for married couples filing jointly) and is fully eliminated at $150,000 ($250,000 joint). The $10,000 limit applies per tax return, not per vehicle or per loan.

Temporary benefit. Under current law, the deduction applies only to interest paid in tax years 2025 through 2028. If your loan term extends beyond 2028, interest paid in later years is not expected to be deductible. Tax laws and IRS guidance may change.

Claiming the deduction. You must report the vehicle's VIN on your federal tax return for each year you claim the deduction. OnPath FCU will provide an annual statement of interest paid as required by IRS regulations. You are responsible for determining your eligibility and keeping records that support your deduction.

No tax advice. OnPath FCU does not provide tax, legal, or accounting advice and cannot determine whether you or your vehicle qualify. This information is general and is not a guarantee that any deduction will be allowed. Please consult a qualified tax professional before making a purchase decision based on potential tax benefits.

Loan terms. All loans are subject to credit approval and membership eligibility. Your loan obligations, including your payments, are not affected by whether you qualify for or claim the deduction. Rates, terms, and conditions vary and are subject to change. Federally insured by NCUA.