A new federal deduction can cut up to $10,000 off the interest on your Tesla loan.
The $7,500 federal EV purchase credit expired for vehicles acquired after September 30, 2025, but a separate federal tax break introduced in the same law is still very much active: a deduction for interest paid on new-car loans, worth up to $10,000 a year. If you’re financing a new Tesla, it’s worth knowing whether you qualify.
How it works
The IRS’s guidance on the deduction confirms it applies to interest paid on loans taken out after December 31, 2024, to buy a new vehicle for personal use — not a lease, and not a used car. You don’t need to itemize to claim it; it’s available whether you take the standard deduction or itemize. There’s a $10,000 cap on the interest you can deduct in a given year, and no limit on how many qualifying vehicle loans you can claim it across.
Do Teslas qualify?
The vehicle has to be newly purchased (not leased) and undergo final assembly in the United States. Every current Tesla model — Model 3, Model Y, Model S, Model X, and Cybertruck — is assembled at Tesla’s Fremont, California or Austin, Texas plants, so a new, financed Tesla purchase meets that part of the test. The deduction phases out for higher earners: reporting on the rule notes it phases out at a 20% rate above $100,000 in income for single filers and $200,000 for joint filers, so it’s most valuable to buyers below those thresholds.
What it’s actually worth
The savings depend on your loan size, rate, and term — you’re deducting interest paid, not principal, and interest is front-loaded early in a loan. A buyer financing a large chunk of a new Tesla at a typical auto-loan rate could plausibly pay several thousand dollars in interest in the loan’s first year or two, making a meaningful dent in taxable income. The deduction is currently scheduled to run through tax year 2028. Talk to a tax preparer about your specific numbers — this is general information, not tax advice — but it’s a real, current savings lever that a lot of financed EV buyers don’t know still exists.
Photo by Andrea Piacquadio.