Can U.S. Expats Use the New Car Loan Interest Deduction?

Sep 13
4 min read

The One Big Beautiful Bill Act (OBBBA), signed into law in July 2025, introduced a host of new tax provisions, including a temporary deduction for interest paid on certain car loans. This deduction, available for tax years 2025 through 2028, has generated significant interest among taxpayers—especially those living abroad. But can U.S. expats take advantage of this new deduction? Let’s break down the law and its implications for Americans overseas.

Expats may find it hard to qualify for the new car loan interest deduction.

What Is the New Car Loan Interest Deduction?

For tax years 2025 through 2028, individuals may deduct up to $10,000 per year in interest paid on a loan used to purchase a “qualified vehicle” for personal use. The deduction phases out for taxpayers with modified adjusted gross income (MAGI) over $100,000 ($200,000 for joint filers). To qualify:

The loan must be originated after December 31, 2024.
The vehicle must be for personal (not business or commercial) use.
The vehicle must be new (original use commences with the taxpayer).
The vehicle must be a car, minivan, van, SUV, pickup truck, or motorcycle with a gross vehicle weight rating under 14,000 pounds.
Final assembly of the vehicle must occur in the United States.
The loan must be secured by a first lien on the vehicle.
The taxpayer must include the vehicle identification number (VIN) on their tax return for the deduction year.
Lease payments do not qualify.
Refinanced loans may qualify, but only up to the amount of the original qualifying loan.
The deduction is available to both itemizers and non-itemizers.

What About U.S. Expats?

1. General Eligibility

U.S. citizens and resident aliens are subject to U.S. income tax on their worldwide income, regardless of where they live. This means expats file U.S. tax returns and can generally claim deductions and credits available to other U.S. taxpayers, unless a provision specifically excludes them.

2. Key Requirements That Affect Expats

Let’s examine the requirements in the context of expats:

a. Vehicle Must Be Assembled in the U.S.

The law requires that the “final assembly” of the vehicle occur in the United States. This is verified by the VIN or the vehicle information label.
For expats, this means only vehicles assembled in the U.S. are eligible, regardless of where the vehicle is purchased or used.

b. Original Use Must Commence with the Taxpayer

The deduction is only for new vehicles—the first use must be by the taxpayer. Used vehicles do not qualify.

c. Vehicle Must Be for Personal Use

The deduction is for personal use vehicles, not for business or commercial use.

d. Loan Must Be Secured by a First Lien on the Vehicle

The loan must be secured by a first lien on the vehicle. This is a standard requirement for most U.S. auto loans, but may be less common or more complex for vehicles purchased and financed abroad.

e. Loan Must Be Incurred After December 31, 2024

Only loans originated after this date qualify.

f. VIN Must Be Reported on the Tax Return

The taxpayer must report the VIN on their U.S. tax return for the year the deduction is claimed.

3. Practical Challenges for Expats

While the law does not explicitly exclude expats, several practical and legal hurdles may make it difficult for most expats to claim the deduction:

a. Vehicle Location and Use

The law does not require the vehicle to be physically located in the U.S., but it must be assembled in the U.S. and the loan must be secured by a first lien.
If an expat purchases a U.S.-assembled vehicle while living abroad, they would need to ensure the vehicle is new, the loan is secured by a first lien, and the vehicle is for personal use.

b. Financing Arrangements

U.S. banks and lenders typically require the vehicle to be titled and registered in the U.S. to secure a lien. Foreign lenders may not be able or willing to secure a lien on a U.S.-assembled vehicle located abroad.
If an expat purchases a U.S.-assembled vehicle abroad and finances it with a foreign lender, it may be difficult to meet the “first lien” requirement as defined under U.S. law.

c. Registration and Titling

The law does not specify that the vehicle must be registered in the U.S., but the practicalities of securing a U.S.-style auto loan and lien may require U.S. registration.

d. Documentation and Reporting

The taxpayer must be able to provide the VIN and documentation showing the loan meets all requirements, including the first lien.

4. Foreign Earned Income Exclusion (FEIE) and Deduction Limitations

Expats who exclude income under the Foreign Earned Income Exclusion (FEIE) under IRC §911 may have a reduced ability to benefit from deductions, since the exclusion reduces the amount of income subject to U.S. tax.
However, if the expat has U.S.-taxable income above the exclusion, the deduction could still be used to offset that income.

5. No Explicit Expat Exclusion

The statute and IRS guidance do not explicitly exclude expats from claiming the deduction, provided all requirements are met.

Conclusion: Can Expats Use the Deduction?

Legally, yes—expats can claim the new car loan interest deduction if they meet all the requirements. However, in practice, it will be difficult for most expats to qualify, because:

The vehicle must be new, assembled in the U.S., and likely registered in the U.S.
The loan must be secured by a first lien, which is typically only available through U.S. lenders for vehicles located in the U.S.
Documentation requirements may be hard to satisfy for vehicles purchased and financed abroad.

In summary:

If an expat purchases a new, U.S.-assembled vehicle, finances it with a U.S. lender who secures a first lien, and uses it for personal purposes, they can claim the deduction, even if they live abroad.
If the vehicle is purchased and financed abroad, it is unlikely the expat will be able to meet the lien and documentation requirements, and thus would not qualify.

Practical Tip: Expats considering this deduction should consult with a U.S. tax advisor and ensure all requirements—including the first lien and VIN reporting—are met. For most expats, the deduction will be out of reach unless they maintain close financial and property ties to the U.S.