Reminder: If you purchased a new car last year, pay close attention to your 2025 tax filing. A new federal tax deduction is allowing some taxpayers to deduct interest paid on auto loans for the first time in decades.The provision is part of 2025’s “One Big Beautiful Bill.” It applies to vehicles purchased in 2025 and allows eligible buyers to deduct up to $10,000 in interest payments on their federal taxes. Unlike previous tax benefits related to car buying, the deduction is available even to taxpayers who take the standard deduction rather than itemizing, broadening its reach. There are limitations, however. To qualify, the vehicle must be bought new, used primarily for personal transportation, and assembled in the United States. Vehicle loans must also be taken out after the end of 2024, and the deduction phases out the higher your income, starting at $100,000 for individuals and $200,000 for couples filing jointly. Woman Works on Filing Tax Return OnlineThe policy is designed in part to encourage domestic auto production while providing some financial help as car prices and borrowing costs remain high. The average monthly car payment has risen to almost $750 in recent years, and interest rates have remained high compared to pre-pandemic levels.The deduction is also temporary, currently scheduled to apply only to vehicles purchased between 2025 and 2028.Another key limitation is that imported models are largely excluded due to the US-assembly requirement, which would severely limit the number of eligible buyers.Whether it significantly influences buying decisions remains to be seen, but for eligible consumers, it offers at least some financial incentive at a time when the cost of owning a vehicle continues to rise.