Financed a New Car in the U.S.? You May Pay Less Tax
- Bianca Kegel
- Feb 6
- 4 min read
Starting in 2025, a new provision of U.S. tax law may directly benefit Brazilians who live in or invest in the United States. This provision allows a deduction for interest paid on auto loans, commonly referred to as “No Tax on Car Loan Interest”, created under the One Big Beautiful Bill Act (OBBB).
In practical terms, this rule allows taxpayers to reduce their federal income tax when financing a new vehicle, provided certain requirements are met. For many taxpayers, this represents real tax savings and a more efficient purchasing decision from a tax-planning perspective.
What is this deduction, in simple terms?
If you finance a new vehicle in the United States for personal use, you may deduct the interest paid to the lender on your federal income tax return.
This benefit:
Applies to tax years 2025 through 2028
Can be claimed even by taxpayers who use the standard deduction
In other words, itemizing deductions is not required to benefit from this rule — a common situation for Brazilian residents in the U.S.
How much can you save?
Deduction limit: up to USD 10,000 per year, per tax return
Married filing jointly: the limit remains USD 10,000 total
The higher the amount of interest paid, the greater the potential benefit, subject to the legal cap
For many families in the U.S., this can result in thousands of dollars in tax savings over the life of the loan.
Is there an income limit?
Yes. This benefit begins to phase out as the taxpayer’s annual income increases:
Single filers: phase-out begins at USD 100,000 of annual income
Married filing jointly: phase-out begins at USD 200,000
Even so, many Brazilians may still qualify, including those with:
International income
Salary or management compensation
Investments
More complex ownership or business structures
This highlights the importance of a professional tax analysis.
Important: not every vehicle qualifies
One of the most critical — and often misunderstood — requirements is the final assembly location of the vehicle.
“Final assembly” refers to the stage at which the vehicle is completed and prepared for sale.
To qualify for the deduction:
The vehicle must be new
Final assembly must have occurred in the United States
This information can be verified:
On the official vehicle label at the dealership, or
Through the VIN (Vehicle Identification Number)
Important notes
Used vehicles do not qualify
Vehicles assembled outside the U.S. are not eligible, even if financed through U.S. financial institutions
What about the financing?
The loan itself must also meet certain basic requirements:
The financing must have been originated after December 31, 2024
The vehicle must serve as collateral for the loan
The loan must be obtained from a bank or financial institution (not from relatives)
Not eligible
Leasing arrangements
Fleet vehicles or vehicles primarily used for commercial purposes
Vehicles with a salvage title (total loss history)
Refinancing
As a general rule, interest remains eligible provided the original loan complied with the legal requirements.
Personal use: is the car for the family?
To claim the deduction, the vehicle must be used primarily for personal purposes, meaning more than 50% of the time.
This includes use by:
The taxpayer
The spouse
The taxpayer’s children
If the vehicle is used primarily for business purposes, this specific deduction does not apply.
How does this appear on the tax return?
The deduction is reported directly on the U.S. federal income tax return (Form 1040).
Important detail
The VIN of the vehicle must be reported for each tax year in which the deduction is claimed
The lender typically provides an annual statement showing the total interest paid
What Brazilians in the U.S. should consider
The benefit may reduce tax liability even when using the standard deduction
The rule may interact with income earned in Brazil or other countries
An incorrect choice of vehicle or financing structure may eliminate the benefit entirely
Planning before purchasing the vehicle makes a significant difference
Conclusion
The auto loan interest deduction represents an excellent tax-saving opportunity in the United States, but only for taxpayers who strictly comply with all legal requirements.
For individuals with international income, investments, or immigration-related planning considerations, specialized guidance is essential to avoid errors and maximize lawful tax benefits.
FAQs – Frequently Asked Questions About the Auto Loan Interest Deduction
Do I need to itemize deductions to claim this benefit?
No. The deduction may be claimed even by taxpayers who use the standard deduction.
Do used vehicles qualify?
No. Only new vehicles, for which original use begins with the taxpayer, are eligible.
How can I confirm whether the vehicle was assembled in the United States?
The vehicle must have undergone final assembly in the United States.
Verification can be done:
Through the official vehicle label at the dealership, or
By reviewing the VIN
Practical tip:
VINs that commonly indicate final assembly in the U.S. begin with:
1
4
5
7F through 7Z
70
The VIN is a strong indicator, but official confirmation should always be obtained from the vehicle label or with professional assistance.
Can the vehicle be used by my family?
Yes, provided the use is primarily personal, exceeding 50% of total use.
Does leasing qualify for the deduction?
No. Only traditional financing arrangements are eligible.
Is there an income limit?
Yes. The deduction begins to phase out at:
USD 100,000 for single filers
USD 200,000 for married filing jointly
I refinanced my car. Can I deduct the interest?
It depends on the date of the original loan:
If the original financing occurred before December 31, 2024, the refinanced loan does not qualify
If the original financing occurred after December 31, 2024, the interest remains eligible, subject to the annual USD 10,000 limit
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