No Tax on Car Loan Interest: a new US-assembled car bought in 2025
A single tech worker in Austin who bought a new, US-assembled car in 2025 and financed it. The One Big Beautiful Bill Act's new car-loan-interest deduction (Schedule 1-A) lets him deduct the loan interest, up to $10,000 a year, for tax years 2025 through 2028.
Taxpayer facts
Who this is and what their year looked like.
Andre is single, 31, and works in IT support in Austin. In early 2025 he bought a new SUV, assembled in the United States, and took out a loan to pay for it.
His income is one W-2. The only new wrinkle is the loan interest he paid during the year, which 2025 is the first year he can deduct.
- NameAndre T. Rosario
- Date of birth11/23/1994
- SSN461-28-7750
- Age (as of 12/31/2025)31
- Filing statusSingle
- DependentsNone
- Claimed as a dependent by anyone else?No
- OccupationIT support technician
- Address5304 Berkman Dr, Austin, TX 78723
- ResidencyTexas, full year (no state income tax)
- VehicleNew 2025 SUV, final assembly in the United States, bought and titled in 2025 for personal use. The loan was originated in 2025 and is secured by a lien on the vehicle. Not a lease.
- Health coverageEmployer plan, full year
Source documents
Work from these the way you would a real client's paperwork. Everything is fictional.
Objectives
What a correct return should capture.
- Report the W-2 box 1 wages on Form 1040 line 1a to reach AGI.
- Confirm the vehicle and loan qualify: a new vehicle (original use starts with the taxpayer), US final assembly, personal use, loan originated after December 31, 2024, and secured by a lien. A lease does not qualify.
- Claim the car-loan-interest deduction on new Schedule 1-A, limited to the lesser of the interest paid or the annual cap, and confirm modified AGI is under the single phase-out threshold.
- Take the single standard deduction, which applies in addition to the car-loan-interest deduction, to reach taxable income.
- Figure the tax from the Tax Table and compare it to the federal withholding in box 2 for the refund. Note that Texas has no state income tax.
Check your work
The answer key and the complete return, the way a real client receives it: the 1040 and its schedules, the workpapers behind every number, and the signature forms.
Stuck? Work through it with Yehuda
A one-on-one, 30-minute tutoring session on this return with Yehuda Tenenbaum, EA. Bring the spot where you got stuck and we will work through it together: how the forms connect, why a figure lands where it does, and how to check your work. $250. This is education on the practice return, not advice on your own taxes.