The New Senior Deduction and Car Loan Interest Deduction, Explained
The 2025 federal tax law created several temporary deductions for individuals that apply from 2025 through 2028. Tips and overtime get most of the attention. Two others apply to many households: an extra deduction for people 65 and older, and a deduction for interest on a loan for a new car.
Both can be claimed whether you itemize or take the standard deduction. Both phase out at higher incomes.
The senior deduction
If you are 65 or older by the end of the tax year, you can deduct an extra $6,000. A married couple where both spouses qualify can deduct $12,000. It is in addition to the extra standard deduction that people 65 and older already receive, and it is available whether you take the standard deduction or itemize.
The deduction starts to phase out once modified adjusted gross income passes $75,000, or $150,000 on a joint return. It drops by 6 percent of the income above that threshold, so it is gone entirely at $175,000 for a single filer and $250,000 for a married couple filing jointly.
To claim it, you need a valid Social Security number, and married couples must file jointly. It is a deduction, not an exemption for Social Security benefits. Your benefits can still be taxable, depending on your other income.
The car loan interest deduction
For 2025 through 2028, you can deduct up to $10,000 a year of interest on a loan used to buy a qualifying new vehicle for personal use. The requirements are specific:
The vehicle must be new, meaning its original use starts with you. Used vehicles do not qualify.
Its final assembly must have taken place in the United States.
It must be a car, minivan, van, SUV, pickup truck, or motorcycle with a gross vehicle weight rating under 14,000 pounds.
The loan must have been taken out after December 31, 2024, and be secured by a lien on the vehicle.
When you take out the loan, you must expect to use the vehicle for personal purposes more than half the time.
Lease payments do not qualify.
The deduction is reduced by $200 for every $1,000 of modified adjusted gross income above $100,000, or $200,000 on a joint return. You will need to report the vehicle identification number, or VIN, on your return. You can confirm where a vehicle was assembled by entering its VIN in the National Highway Traffic Safety Administration's VIN decoder.
What these deductions are worth
A deduction lowers your taxable income, not your tax dollar for dollar. For a household in the 22 percent bracket, $3,000 of qualifying car loan interest saves about $660 of federal tax. The full $6,000 senior deduction saves about $1,320 at the same bracket.
Business vehicles are different
If you expect to use a vehicle mostly for business, this deduction is not the right tool. Interest and other costs for business use are handled as business expenses under the usual rules, and the vehicle may qualify for depreciation. The same interest cannot be deducted twice.
California does not follow these deductions
California has not adopted the 2025 federal tax law. These deductions lower your federal tax, but they do not reduce your California tax.
What to send us
If you bought a new vehicle with a loan in 2025 or 2026, send us the purchase contract, the lender's year-end statement showing the interest you paid, and the VIN. If you or your spouse turned 65 this year, make sure we have current Social Security numbers and dates of birth for everyone on your return.
Book your planning call
If you want to see how these deductions affect your 2026 tax, book a time with our team at calendly.com/kirkcole/15-minute-meeting.
This article is general information, not tax advice for your situation. Tax rules change, and the right move depends on your facts.