Updated November 2026. For decades, interest on a personal car loan was nondeductible. For tax years 2025 through 2028, that has changed: if you finance a new, U.S.-assembled vehicle for personal use, you may be able to deduct up to $10,000 of loan interest each year. The IRS finalized the rules in September 2026. Here is who qualifies, what law made this possible, and how to claim it.
On this page:
- The short version
- What law made this possible
- Who qualifies
- Income limits and phase-out
- What does not qualify
- How to claim the deduction
- Frequently asked questions
The short version
- Up to $10,000 of interest per year, for tax years 2025 through 2028.
- The loan must have been taken out after December 31, 2024.
- The vehicle must be new, have final assembly in the United States, and be bought for personal use.
- You can claim it whether or not you itemize.
- The deduction phases out for modified adjusted gross income (MAGI) above $100,000 ($200,000 if married filing jointly).
- It does not apply to used vehicles, leases, or business and fleet vehicles.
What law made this possible
The deduction was created by the One Big Beautiful Bill Act (Public Law 119-21), signed on July 4, 2025. Section 70203 of that law added a new paragraph, Internal Revenue Code §163(h)(4), which carves “qualified passenger vehicle loan interest” out of the general rule that personal interest is not deductible. It also added §6050AA, which requires lenders to report this interest to borrowers and the IRS.
Treasury and the IRS issued proposed regulations on December 31, 2025, and finalized them as T.D. 10054, published in the Federal Register on September 8, 2026 and effective November 9, 2026. The effective date of the regulations does not change when the deduction itself applies: it covers qualifying interest paid in tax years 2025 through 2028.
Who qualifies for the car loan interest deduction?
You need to meet three sets of tests: the vehicle, the loan, and you.
1. The vehicle
- It is new: its original use begins with you, so no used vehicles qualify.
- It is a car, minivan, van, SUV, pickup truck, or motorcycle manufactured primarily for use on public roads, with a gross vehicle weight rating under 14,000 pounds.
- Its final assembly took place in the United States. You can confirm this from the plant of manufacture shown in the VIN, the vehicle’s window sticker, or the NHTSA VIN decoder.
- You bought it for personal use: when the loan is made, you expect to use the vehicle for personal purposes more than 50% of the time.
2. The loan
- The debt was incurred after December 31, 2024, to buy the vehicle.
- It is secured by a first lien on the vehicle. Unsecured personal loans and credit card financing do not qualify.
- Refinancing is allowed, but only up to the outstanding balance of the original qualifying loan, and the new loan must also be secured by a first lien.
- Customary financed costs, such as sales tax, title and registration fees, extended warranties, and service plans, can be part of the qualifying loan.
- Negative equity rolled over from a trade-in does not qualify. Under the final regulations, a loan that includes negative equity is split into qualifying and non-qualifying portions, with interest allocated proportionally, and any down payment is applied first to the negative equity.
3. You
- Individuals, decedents’ estates, and non-grantor trusts can claim the deduction.
- Your MAGI affects how much you can deduct (see below).
- The same interest cannot be deducted twice. For example, if part of the vehicle is used in a business, that portion is handled under the business interest rules instead.
Income limits and phase-out
The $10,000 maximum is reduced by $200 for every $1,000 (or part of $1,000) by which your MAGI exceeds the threshold below. For a taxpayer with a full $10,000 of qualifying interest, the deduction is reduced to zero at roughly $150,000 (single) or $250,000 (joint).
| Filing status | Phase-out begins at MAGI over | Fully phased out (full $10,000 of interest) |
|---|---|---|
| Married filing jointly | $200,000 | about $250,000 |
| All other filers | $100,000 | about $150,000 |
Example
This is an illustration only. A single filer pays $6,000 of qualifying interest in 2026 and has MAGI of $120,000. MAGI is $20,000 over the $100,000 threshold, so the deduction is reduced by 20 × $200 = $4,000. The deduction is $6,000 − $4,000 = $2,000. With MAGI of $90,000, the same filer would deduct the full $6,000.
What does not qualify
- Used vehicles, and vehicles whose final assembly was outside the United States.
- Leases. Lease payments are not loan interest.
- Loans originated before January 1, 2025.
- Fleet sales and commercial vehicles that are not used for personal purposes.
- Interest on negative equity rolled into the new loan.
- Vehicles with a gross vehicle weight rating of 14,000 pounds or more.
How to claim the car loan interest deduction
- Get your lender’s interest statement. Lenders that receive $600 or more of interest from an individual on a qualifying loan must report it to the IRS and give you a statement (on a new Form 1098-VLI) by January 31 of the following year. For 2025, the IRS gave lenders transition relief (Notice 2025-57), so you may have received only an online statement or may need to ask your lender for your interest total. The final regulations did not extend that relief.
- Confirm the vehicle’s final assembly and note its VIN. The VIN must be included on your return.
- Complete Schedule 1-A (Form 1040), Part IV. You enter the interest paid and the VIN, and the total of your Schedule 1-A deductions carries to Form 1040. You can claim it with the standard deduction or when you itemize.
- Keep your records: the purchase contract, window sticker, loan documents, and lender statements.
Bought a vehicle in 2025 and did not claim it?
If you financed a qualifying vehicle in 2025 and your 2025 return did not include this deduction, you may be able to file an amended return. Contact us and we will review the loan and vehicle details with you.
Planning a purchase?
A few decisions made before you sign can affect the deduction: confirming where the vehicle was assembled, how much you put down relative to any trade-in balance, and how income-based phase-outs could apply to your situation. Contact us before you buy, or get started as a new client.
Car loan interest deduction: frequently asked questions
Is car loan interest tax deductible?
Yes, for tax years 2025 through 2028. The loan must have been taken out after December 31, 2024 to buy a new vehicle that was assembled in the United States and is used mostly for personal purposes, and it must be secured by a first lien on the vehicle.
How much car loan interest can I deduct?
Up to $10,000 of qualifying interest per year. The deduction is reduced by $200 for every $1,000 (or part of $1,000) that your modified adjusted gross income is above $100,000, or above $200,000 if you file a joint return.
Do I have to itemize to claim the car loan interest deduction?
No. You can claim it whether you take the standard deduction or itemize.
Does a used car qualify for the car loan interest deduction?
No. The original use of the vehicle must begin with you, so used vehicles do not qualify.
Do leased vehicles qualify?
No. Lease payments are not loan interest, so leases do not qualify.
How do I know if my vehicle was assembled in the United States?
Check the plant of manufacture shown in the vehicle identification number (VIN), the window sticker, or the NHTSA VIN decoder at nhtsa.gov/vin-decoder.
Can I deduct interest if I refinanced my car loan?
Yes, if the new loan is secured by a first lien on the vehicle, but only up to the outstanding balance of the original qualifying loan.
Can I deduct interest on negative equity rolled over from a trade-in?
No. Interest on negative equity rolled into a new vehicle loan does not qualify. Under the final regulations, any down payment is applied to the negative equity first.
Where do I claim the car loan interest deduction on my tax return?
On Schedule 1-A (Form 1040), Part IV, where you enter the interest you paid and the vehicle identification number (VIN).
Related tax law updates
- What the One Big Beautiful Bill Act changes for 2026 filings
- Key tax deadlines for individuals and businesses
- Our tax preparation and planning services
This article is general information, current as of November 2026, and is not tax advice for your specific situation. The deduction is temporary, and rules and guidance can change. Please talk to us about how it applies to you.
Sources
- One Big Beautiful Bill Act, Pub. L. 119-21, §70203 (IRC §§163(h)(4) and 6050AA)
- Car Loan Interest Deduction, T.D. 10054 (final regulations), 91 Fed. Reg. 57214 (Sept. 8, 2026)
- NHTSA VIN decoder