To amend the Internal Revenue Code of 1986 to provide for special rules allowing taxpayers to deduct qualified passenger vehicle loan interest paid or accrued during the taxable year on certain indebtedness, and for other purposes.

Bill Summary

H.R. 3450, titled No Tax on Car Loan Interest, would temporarily allow individuals to deduct interest paid on certain passenger vehicle loans, treating that interest as not being nondeductible “personal interest” for a defined window of time. The bill amends Internal Revenue Code section 163(h) to carve out qualified passenger vehicle loan interest from the personal interest disallowance for taxable years beginning after December 31, 2024 and before January 1, 2029. In practice, that means tax years 2025 through 2028. The deduction is made an above-the-line deduction by adding it to section 62(a), so taxpayers can claim it whether or not they itemize.

To qualify, the interest must be paid or accrued during the year on debt incurred after December 31, 2024 to purchase an applicable passenger vehicle for personal use, and the loan must be secured by a first lien on that vehicle. The bill excludes several situations: loans for fleet sales, personal cash loans merely secured by a previously purchased vehicle, loans for commercial vehicles not used for personal purposes, any lease financing, loans to buy vehicles with salvage titles, and loans to buy vehicles intended for scrap or parts. Refinancing is permitted and can qualify so long as the new loan is also a first-lien loan on the same vehicle and does not exceed the refinanced principal.

There are two key limitations. First, a dollar cap: the amount of interest a taxpayer can take into account each year is limited to $10,000. Second, an income-based phaseout using modified adjusted gross income (MAGI): the allowable deduction (after applying the $10,000 cap) is reduced by $200 for every $1,000 (or fraction) by which MAGI exceeds $100,000 for single filers or $200,000 for joint filers. This is a steep phaseout. For example, a single filer whose MAGI is $150,000 would see a $10,000 potential deduction reduced by $10,000 (200 × 50), effectively eliminating it. For joint filers, a full $10,000 benefit would phase out by $250,000 MAGI. MAGI is defined as AGI increased by amounts excluded under sections 911, 931, or 933.

The bill broadly defines applicable passenger vehicle. It includes cars, minivans, vans, SUVs, pickup trucks, and motorcycles manufactured primarily for use on public roads; all-terrain vehicles (ATVs) designed for land use; and trailers, campers, and recreational vehicles designed to provide temporary living quarters (whether self-propelled or towable). A major constraint is a domestic final assembly requirement: the vehicle must have had its final assembly in the United States. The bill defines final assembly as the process by which a manufacturer produces a vehicle at a plant or factory and delivers it to a dealer or importer with all parts necessary for mechanical operation included, whether or not all parts are permanently installed. This means imported vehicles or vehicles assembled in Canada or Mexico would not qualify.

The bill sets up a new reporting regime akin to the mortgage interest Form 1098 system. New section 6050AA requires any person engaged in a trade or business who receives $600 or more in interest in a calendar year on a specified passenger vehicle loan from an individual to file an information return with the IRS and furnish a statement to the borrower by January 31 of the following year. The return must include the borrower’s name and address, total interest received, outstanding principal at the beginning of the year, loan origination date, and the vehicle’s year, make, and model (or other prescribed description). The Treasury is directed to issue regulations to administer the program and prevent duplicate reporting.

Notably, the deduction applies only to vehicles used for personal purposes; business interest remains governed by existing rules and is generally deductible for business use. The exclusion of lease financing means consumers who lease would not benefit, nor would fleet buyers or purely commercial vehicle purchases. The deduction applies to loans on both new and used vehicles so long as the vehicle’s final assembly occurred in the U.S. and the loan meets the post-2024 first-lien purchase requirement, but salvage-title vehicles are excluded. The policy is temporary (four tax years), capped, and phased out at middle-to-upper income levels, indicating an intent to deliver time-limited consumer relief during a period of elevated auto borrowing costs while encouraging purchases of domestically assembled vehicles. It would reduce federal revenue by allowing above-the-line deductions to a wide number of borrowers, with the total fiscal impact dependent on auto loan volumes and interest rates during 2025–2028. The administrative overlay for lenders resembles familiar reporting structures, but it does add compliance tasks. There may also be interpretive questions for mixed personal/business use and the interaction of the phaseout with AGI computations, which Treasury guidance would likely address.

Where Each Party Stands

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