Car Loan Interest Deduction: Who Qualifies for Up to $10,000

The car loan interest deduction lets you deduct up to $10,000 a year of interest on a loan for a new car, SUV, van, pickup or motorcycle with final assembly in the United States, bought for personal use with a loan taken out after December 31, 2024. It applies to tax years 2025 through 2028, works whether or not you itemize, and shrinks once modified adjusted gross income passes $100,000, or $200,000 on a joint return.

The deduction was created by the One Big Beautiful Bill Act (section 70203). The IRS published final regulations in the Federal Register on September 8, 2026, effective November 9, 2026. The rules below reflect those regulations as of November 2026.

Who can claim the car loan interest deduction?

Any individual taxpayer who paid interest on a qualifying loan can claim it, including people who take the standard deduction. It is subtracted from adjusted gross income when computing taxable income, so you do not need to itemize.

The loan must meet four tests:

• It was taken out after December 31, 2024.
• It was used to buy the vehicle, not to pay off other debt.
• It is secured by a first lien on that vehicle. A home equity loan or an unsecured personal loan does not qualify.
• The vehicle is for personal use. Under the final rules, you must expect personal use more than 50% of the time when the loan is made.

The IRS lists exclusions too. Interest on lease financing, fleet loans, loans for commercial vehicles not used personally, loans for vehicles with a salvage title, and loans for vehicles bought for scrap or parts does not count.

Which vehicles qualify?

A qualifying vehicle is a new car, minivan, van, SUV, pickup truck or motorcycle with a gross vehicle weight rating under 14,000 pounds and final assembly in the United States.

• New means original use starts with you. Used cars do not qualify. A dealer’s demonstrator still counts as new if the dealer held it mainly for sale.
• Leftover model years count. The IRS confirmed that a prior model year vehicle sold new in a later year can qualify.
• Lease buyouts usually do not. When you buy the car at the end of a lease, original use typically started with the leasing company, so the loan does not qualify.
• Final assembly must be in the US. Where parts came from does not matter for this test.

To confirm final assembly, the regulations let you rely on the plant of manufacture encoded in the VIN, which you can read with the NHTSA VIN decoder, or on the final assembly point printed on the label attached to new vehicles, often called the window sticker. Our guide to finding where your car was built shows both methods.

How does the income phase-out work?

The deduction is reduced by $200 for each $1,000, or part of $1,000, by which modified adjusted gross income exceeds $100,000. For married couples filing jointly the reduction starts at $200,000.

The reduction comes off the interest you actually paid, after the $10,000 cap. A single filer with $110,000 of modified AGI who paid $3,000 of interest can deduct $1,000, not $3,000. The $10,000 cap applies per return, not per vehicle.

How do I claim it and report the VIN?

You claim the deduction on your Form 1040 and must report the vehicle’s VIN on the return. For 2025 returns the deduction and VIN go in Part IV of Schedule 1-A. The law does not allow the IRS to waive the VIN requirement, so a missing VIN means no deduction.

1. Collect the interest statement from your lender. Lenders that receive $600 or more of qualifying interest in a year must report it on Form 1098-VLI. For 2025, the IRS allowed a simpler interest statement under Notice 2025-57.
2. Confirm the vehicle is new, under 14,000 pounds GVWR and assembled in the US.
3. Work out your modified AGI and apply the phase-out.
4. Enter the deduction and the VIN on the schedule the current Form 1040 instructions specify.

The IRS summary is on its page for individuals and workers. Tax software and form numbers can change from year to year, so check the current instructions, and ask a tax professional if your situation is unusual. This page is general information, not tax advice.

What happens if I refinance the car loan?

A refinanced loan keeps qualifying, but only up to the balance of the original loan being refinanced. Interest on extra cash or add-on products rolled into the new loan does not qualify, although accrued unpaid interest from the old loan may be included.

Adding a co-borrower at refinancing does not make the loan qualify for that new person. If the original borrower dies, the loan can still qualify for the successor. Rolling negative equity from an old car into a new loan is a separate problem; our guide to upside-down car loans covers it.

Bottom line

The deduction rewards a narrow purchase: a new, US-assembled vehicle under 14,000 pounds, financed with a loan secured by the car, for a household under the income limits. Check the VIN before you sign, keep the lender’s interest statement, and put the VIN on your return.

FAQ

Can I deduct interest on a used car loan?

No. The vehicle’s original use must begin with you, so used cars and most lease buyouts do not qualify. The rules apply only to new vehicles.

Do I have to itemize to claim the car loan interest deduction?

No. The deduction is available to taxpayers who take the standard deduction as well as those who itemize, for tax years 2025 through 2028.

Does a foreign brand built in the US qualify?

Yes, if final assembly took place in the United States. The brand’s home country does not matter; the plant does.

Are lease payments deductible under this rule?

No. Lease financing is excluded by the regulations, so interest built into a lease payment does not count.