Car Loan Interest Deduction Rules: Which Vehicles and Loans Qualify
In one paragraph: You can deduct up to $10,000 a year of interest on a loan for a new, personal-use car, SUV, van, pickup or motorcycle (under 14,000 lb GVWR) that had final assembly in the United States, if the loan began after 2024 and is secured by the vehicle. The deduction phases out between $100,000 and $150,000 of MAGI ($200,000 to $250,000 joint) for tax years 2025–2028.
The test, item by item
| Requirement | What it means |
|---|---|
| New vehicle | Original use begins with you. Used cars are out. |
| Vehicle type | Car, minivan, van, SUV, pickup truck or motorcycle with GVWR under 14,000 pounds. |
| U.S. final assembly | The vehicle information label shows where final assembly occurred. The IRS also points to the VIN and NHTSA's VIN decoder. |
| Personal use | The deduction is for personal-use vehicles. |
| Loan date | Loan originated after December 31, 2024. |
| Loan secured | Secured by a lien on the vehicle; used to purchase it. |
| Who | You, or your spouse on a joint return, paid or accrued the interest; valid Social Security number; married couples file jointly. |
| On the return | The VIN must be on Schedule 1-A. |
Edge cases the final regulations address
- Negative equity: debt rolled in from a prior vehicle isn't incurred to purchase the new one, so interest on that part isn't qualified.
- Refinancing: a refinanced loan can still qualify, capped at the outstanding balance of the original qualifying loan.
- Leases: excluded.
- Lender reporting: lenders that receive $600 or more of interest in the course of a trade or business must report; the final regulations (TD 10054) are effective November 9, 2026.
Worked examples
Example 1: a typical loan
You finance $42,000 at 8% APR over 60 months. Interest in the first 12 months is about $3,103. With a single-filer MAGI of $85,000 (below the $100,000 threshold), the deduction is $3,103.
Example 2: the rounding-up rule
A single filer paid $7,200 in qualified interest and has MAGI of $112,300. Excess: $12,300. Because the rule rounds up, that is 13 steps of $1,000 × $200 = $2,600. Deduction: $7,200 − $2,600 = $4,600.
Save the purchase agreement, the vehicle information label or window sticker, the loan agreement showing the lien, and your lender's annual interest statement. You'll need the VIN and the interest total for Schedule 1-A.
The tax value depends on your bracket: a $3,000 deduction in the 22% bracket is worth about $660. The calculator can estimate this for 2026 or 2027.
Frequently asked questions
Do I need to itemize to deduct car loan interest?
No. The IRS says the deduction is available whether you itemize or take the standard deduction. You do need to include the vehicle's VIN on your return.
Does a lease qualify?
No. The final regulations apply to interest on a loan used to purchase the vehicle; lease payments are not loan interest.
Is a used car eligible?
No. The vehicle must be new: its original use must begin with you.
Does an electric vehicle qualify?
Possibly. The rule is about the vehicle type, weight (GVWR under 14,000 pounds), personal use and final assembly in the United States, not the fuel. Check the final assembly location and the other tests.
What if I bought the car in 2024 but the loan started in 2025?
The test is about the loan: it must have been originated after December 31, 2024 and the vehicle must be new. A loan that began before 2025 doesn't qualify, even if you have been paying it in 2025 or 2026.
What about a vehicle I use for business?
The deduction is for personal-use vehicles. Interest you deduct on Schedule C, E or F can't also be counted on Schedule 1-A; Part IV of the schedule has a column to remove it.
How does the phase-out round?
Up. The deduction drops by $200 for each $1,000, or part of $1,000, that your MAGI exceeds $100,000 ($200,000 joint). That is different from the overtime and tips deductions, which round down.
Sources and citations
Every dollar figure on this page was checked against the official pages below on November 14, 2026. If an agency updates its guidance, the agency page controls.
- IRS Fact Sheet FS-2025-03: Working Families Tax Cuts — Tax deductions for working Americans and seniors
- IRS Tax Tip 2026-79: Purchasing a new vehicle? Car loan interest could be eligible for a tax deduction
- Federal Register: Car Loan Interest Deduction (final regulations TD 10054, effective Nov. 9, 2026)
- 2025 Schedule 1-A (Form 1040), Additional Deductions (IRS)
- Instructions for Form 1040 (2025), including Schedule 1-A instructions (IRS)