💌 Today’s Thing: Keeping an Eye on How We Drive – Federal Tax Effects on Vehicle Use

🧾 FIRST UP: Changing vehicle mileage rates – some up…some down

The IRS published new mileage rates for 2026¹ on this past Monday in Notice 2026-10². Effective yesterday, the standard mileage rates for the use of a car, van, pickup or panel truck are:

·      72.5 cents per mile driven for business use, up 2.5 cents from 2025.

·      20.5 cents per mile driven for medical purposes, down a half cent from 2025.

·      20.5 cents per mile driven for moving purposes for certain active-duty members of the Armed Forces (and now certain members of the intelligence community), reduced by a half cent from last year.

·      14 cents per mile driven in service of charitable organizations, equal to the rate in 2025.

The rates apply to fully-electric and hybrid automobiles, as well as gasoline and diesel-powered vehicles.

The Notice also contain additional information on relevant maximum automobile cost under fixed and variable rate plans, and maximum fair market value for employer-provided automobiles that are first provided to employees for personal use in 2026. So, in certain employment arrangements, employees driving a fleet car provided by their employer will see adjustments to their mileage reimbursements.

Like in all circumstances, keep a close eye on your pay stub.

🧾 NEXT UP: A tax write-off? For personal interest? Proceed with caution…

When I’m driving and come up on one of those flashing yellow signals, I always recall advice from the driver’s education manual…proceed with caution. Actually I’ve been driving long enough to look left, right, ahead and behind with my head on a swivel. That’s the mindset I have about a new proposed rule on vehicle loan interest published today. 

The One Big Beautiful Bill Act (OBBBA) brings taxpayers something not seen in 40 years: a tax deduction for personal interest expense incurred. This hasn’t been available since President Reagan signed it away a year into his second term. In this case an addition to an existing code section on interest expense provides a definition of qualified passenger vehicle loan interest (QPVLI). ³

The key provision of the law is that the interest expense deduction applies only for an applicable passenger vehicle (APV). IRC §163(h)(4)(D)⁴ provides that an APV meet the following conditions:

(i) the original use of which commences with the taxpayer,

(ii) which is manufactured primarily for use on public streets, roads, and highways (not including a vehicle operated exclusively on a rail or rails),

(iii) which has at least 2 wheels,

(iv) which is a car, minivan, van, sport utility vehicle, pickup truck, or motorcycle,

(v) which is treated as a motor vehicle for purposes of title II of the Clean Air Act, and

(vi) which has a gross vehicle weight rating of less than 14,000 pounds.

Specifically, any interest which is paid or accrued for debt “incurred by the taxpayer after December 31, 2024” and secured by a “first lien” on an APV is eligible⁵.

The definition of APV does not include any vehicle the final assembly of which did not occur within the United States. The final assembly point is listed on the vehicle information label attached to each vehicle on a dealer's premises. Taxpayers can determine whether the vehicle's plant of manufacture is located in the United States by following the instructions on the National Highway Traffic Safety Administration (NHTSA) VIN Decoder website: https://www.nhtsa.gov/​vin-decoder.

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The idea to help jumpstart a return to vehicle ownership is an interesting one. Its only available for original car purchases. That means “new” means with original use commencing with the taxpayer. No used cars, no leases. The best way to view this tax deduction is as a modest benefit that slightly reduces the after-tax cost of a vehicle purchase you were already planning to make, not as a reason to change your purchasing or financing strategy.

The taxpayer income limit of $100,000 directs the focus toward buyers who may lack cash to significantly reduce their loan principal. Household modified adjusted gross income above $100,000 ($200,000 for married filing jointly) are subject to phaseout of the deduction amount available. The amount reduces by $200 for each $1,000 (or portion there of) above $100,000⁶.

According to the website Motor Donkey⁷, the manufacturer suggested retail price (MSRP) for a base model full-size domestic SUV in 2025 was over $46,000. Further, the MSRP on some upscale larger cars and midsize 3-Row Luxury SUVs now exceeds $65,000⁸. According to reporting by CNBC⁹, households would likely need to buy luxury cars costing $130,000 or more to get the maximum benefit. The same CNBC reporting quoted an auto industry economist, stating that “it would take a loan of roughly $112,000 to use up the full $10,000 deduction in the first year of car ownership.”¹⁰ That assumed a six-year loan at 9.5% interest rate, with 10% down payment including taxes and tags.

It is likely that vehicle loans terms longer than seven years will become more common for those who aren’t bringing more than a late-model trade-in to the table. Dealer financing on new vehicles will have to be competitive on interest rates with other financial loan servicers to make money from lending to credit-worthy buyers.

While consumers have been tightening their budgets on everything from food to clothing to vacations, the reality is everyone wants to feel like they look good when they are driving.

This benefit of the OBBBA is a real tax cut for everyone who wants to take advantage of it, whether it makes economic sense to do so or not. Taxpayers need to make a careful assessment of how much of difference tax savings will make. However, when you really need a new car, every little bit of savings will help.

The law change is not permanent. It applies to loan indebtedness beginning after December 31, 2024, and before January 1, 2029. In other words, the sunset date is December 31, 2028. But if it gets people to buy rather than lease more cars, minivans, vans, sport utility vehicles, pickup trucks, or motorcycles between now and then, don’t expect a future Congress – or future President to let this tax benefit for consumers to fade into oblivion. 

There’s the scoop, everyone!  Thanks for taking time to check out this week’s edition of the Tax Clarity Newsletter. 

Thank you so much!

References (10):

¹ IR- 2025-128, IRS sets 2026 business standard mileage rate at 72.5 cents per mile, up 2.5 cents, December 29, 2025. Last accessed January 2, 2026.

² https://www.irs.gov/pub/irs-drop/n-26-10.pdf, last accessed January 2, 2026.

³ Federal Register, Car Loan Interest Deduction, 91 FR 67, last accessed January 2, 2026.

⁴ IRC §163(h)(4)(D)

⁵ IRC §163(h)(4)(B)(i)

⁶ IRC §163(h)(4)(C)(ii)(I)

⁷ The Best Trucks of 2025, by Josh Sadlier, last updated May 31, 2025. Motor Donkey, last accessed January 2, 2026.

⁸ The Best 3-Row SUVs of 2025, by Josh Sadlier, last updated June 13, 2025. Motor Donkey, last accessed January 2, 2026.

⁹ CNBC, Getting Trump’s full tax break on car loans may mean buying a $130,000 vehicle, last accessed January 2, 2026.

¹⁰ Ibid.