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Key takeaways
- The federal car loan interest deduction is available for the 2025 through 2028 tax years.
- You may be able to deduct up to $10,000 of car loan interest per year, but the deduction is gradually phased out if your modified adjusted gross income is greater than $100,000 ($200,000 for married couples filing a joint return).
- The car loan interest deduction is allowed only if the motor vehicle you purchase with a qualifying loan satisfies certain requirements, such as being a new vehicle, having a final assembly point in the U.S., and having a gross vehicle weight rating of less than 14,000 pounds.
- If all the requirements are met, you can claim the deduction for car loan interest payments on Schedule 1-A whether you claim the Standard Deduction or itemized deductions on your federal income tax return.
What is the car loan interest deduction?
The car loan interest deduction is a federal tax deduction for interest paid on loans used to buy a motor vehicle. It was enacted as part of the “One Big Beautiful Bill” (also known as the Working Families Tax Cut), which was signed into law in July 2025, and applies for the 2025 through 2028 tax years.
However, the loan and vehicle you purchase must satisfy certain requirements. For instance, the deduction is only allowed if your loan is taken out after 2024, and the vehicle’s final assembly must be in the U.S.
If all the requirements are met, you can deduct up to $10,000 of qualified car loan interest per year (the limit is the same regardless of your filing status). If you’re paying off more than one car loan, you can combine the eligible interest from each of them to reach the $10,000 maximum.
However, the deductible amount of interest is reduced – potentially to $0 – if your modified adjusted gross income (MAGI) is above $100,000 ($200,000 for married couples filing a joint return).
- TurboTax Tip: “To deduct car loan interest, your car generally must be new (not used), purchased after 2024, driven primarily for personal use, and under 14,000 pounds. Also, its final assembly must have occurred in the United States. You can find the assembly point by entering the VIN on the National Highway Traffic Safety Administration’s VIN Decoder website or checking the car’s window sticker.” – Victoria Adams, EA, Aberdeen, Wash.
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Which vehicles qualify for the car loan interest deduction?
To qualify for the car loan interest deduction, the vehicle you purchase with a qualifying loan must be:
- A new car, minivan, van, SUV, pickup truck, or motorcycle with a gross vehicle weight rating (GVWR) of less than 14,000 pounds
- assembled in the U.S.
- driven mostly for personal reasons
- built primarily for use on public streets, roads, and highways
Let’s take a closer look at these requirements.
1. New vehicle
Since the vehicle must be new, a used car doesn’t count – even if it’s new to you. The fact that other people test-drove the vehicle before you bought it, or that the dealer previously used it as a loaner vehicle, doesn’t necessarily make it a used vehicle for purposes of the deduction. However, you can’t take the deduction if the dealer actually registered or took title of the vehicle before you bought it.
2. Weight limit
Most non-commercial vehicles have a GVWR of less than 14,000 pounds. It’s when you start getting into work trucks and other heavy-duty vehicles that the GVWR becomes an issue. You can usually find the GVWR on the sticker attached to the driver-side door jamb, or you can verify the GVWR with the dealer before you purchase a new vehicle.
3. Assembled in the U.S.
To satisfy the assembly requirement, your vehicle’s “final assembly” must occur within the U.S. So, it’s OK if some parts or components are manufactured or assembled in other countries, as long as the fully-functional vehicle rolls off a U.S. assembly line right before it’s sent to a dealer.
So, how do you know the final assembly point of your new vehicle? You can either:
- Look on the vehicle’s “window sticker,” which dealers must attach to all vehicles on their lot.
- Plug the vehicle identification number (VIN) into the National Highway Traffic Safety Administration’s VIN Decoder website.
4. Personal use
The personal use requirement is met if, at the time you take out a loan to purchase a new vehicle, you expect the vehicle to be driven by you and/or your family members for personal reasons more than 50% of the time. So, you can still claim the deduction if the vehicle is used for business purposes – for instance, if you’re an Uber, Lyft, or other rideshare driver – as long as you planned to drive it for personal reasons more than for business reasons when you borrowed the money to buy the vehicle. If your plans change after buying the vehicle, you can still claim the deduction if all other requirements are satisfied.
If you use your vehicle for both business and personal purposes, you may also be able to deduct some of your interest payments as a business expense (for example, on Schedule C, Schedule E, or Schedule F). However, any interest deducted as a business expense can’t also be deducted as part of the car loan interest deduction.
5. Built primarily for use on public streets, roads, and highways
Even if they’re sometimes driven on roads, the IRS generally doesn’t view certain “off-road” vehicles – such as golf carts, race cars, forklifts, riding lawn mowers, and farm tractors – as manufactured for use on public streets, roads and highways. So, unless you can show that your particular vehicle was indeed built for use on public roads, you can’t claim the car loan interest deduction if you borrow money to buy one of these or other vehicles that typically aren’t “street legal.”
Other requirements
While the vehicle requirements listed above are the main ones to consider, the tax law also states that your vehicle must:
- have at least two wheels
- be treated as a motor vehicle for purposes of the Clean Air Act’s emission standards provisions (that is, it has to be a “self-propelled vehicle designed for transporting persons or property on a street or highway.”)
Any vehicle that satisfies the other requirements discussed above will likely satisfy these two requirements as well. But it may help to know that these additional requirements exist.
Do all loans qualify for the car loan interest deduction?
You can only claim the car loan interest deduction if the interest you paid is for a loan that:
- you took out after 2024
- was used to buy a qualifying motor vehicle (see above)
- is secured by a first lien on the qualifying vehicle
So, interest payments on pre-2025 loans that you’re still paying off aren’t deductible.
Loans from a relative don’t qualify, either.
You also can’t deduct interest paid on a loan that’s used to lease a motor vehicle (or any other lease financing payments), since you don’t “buy” a vehicle when you lease it.
Other loans that don’t qualify for the deduction include those used to finance the purchase of a:
- fleet of motor vehicles
- vehicle with a salvage title
- vehicle intended to be used for scrap or parts
How do I calculate the car loan interest deduction?
The maximum car loan interest deduction is $10,000. If two married people file separate tax returns, the $10,000 limitation applies to each spouse’s return.
However, your deduction will be gradually reduced if your modified adjusted gross income (MAGI) is greater than $100,000 ($200,000 for joint filers). If the phase-out is triggered, the deduction is reduced by $200 for each $1,000 of MAGI over the applicable threshold amount. The deduction is reduced to $0 once your MAGI hits $150,000 ($250,000 on a joint return).
When calculating the car loan interest deduction, MAGI is equal to the adjusted gross income reported on your Form 1040, plus any deduction or exemption claimed for:
- foreign earned income
- foreign housing costs
- income for residents of Guam, American Samoa, the Northern Mariana Islands, or Puerto Rico
Example:
Here’s an example of how to calculate the car loan interest deduction: Suppose you’re single and you paid $12,000 of interest on a car loan in 2025. You also have a MAGI of $120,600 and satisfy all the car loan interest deduction requirements for the 2025 tax year.
First, since your total of $12,000 in qualified interest payments is greater than the $10,000 limit, your maximum deduction is automatically reduced from $12,000 to $10,000.
You then need to calculate an additional reduction, since your MAGI is $20,600 over the limit for single filers ($126,000 – $100,000 = $20,600). To do this, first divide $20,600 by $1,000, and round up to the nearest whole number if you end up with a fraction. The result of this is 21 (after rounding up from 20.6). Next, multiply that amount by $200 to determine the additional reduction, which is $4,200 ($200 x 21 = $4,200).
That means your car loan interest deduction for 2025 is $5,800 ($10,000 – $4,200 = $5,800).
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How do I claim the car loan interest deduction on my tax return?
Use Schedule 1-A to calculate and claim the car loan interest deduction (and other new deductions created by the One Big Beautiful Bill) on your federal income tax return. The combined total of all the deductions claimed on Schedule 1-A (including the car loan interest deduction) are reported on Form 1040.
You also have to provide the VIN for the motor vehicle securing the loan on Schedule 1-A. If your qualified vehicle is replaced due to an unforeseen intervening event – such as a defective vehicle being replaced under your state’s lemon law – include the VIN of the replacement vehicle.
You’ll need to know how much interest on a qualified loan you paid during the tax year to complete Schedule 1-A. If you paid at least $600 of interest in 2025, your lender should have provided a statement to you by Jan. 31, 2026, showing the total amount of interest you paid during the year. A regular monthly statement, annual statement, or other similar statement will suffice as long as it provides an accurate total of the interest paid. It can be delivered through the mail or posted on an online portal that you can access.
Starting with the 2026 tax year, your lender will have to send you a Form 1098-VLI if you paid at least $600 of qualified interest during the tax year. The form will show the amount of interest paid during the year and other information you may need to claim the car loan interest deduction.
Frequently asked questions about the car loan interest deduction
Q1: Can I claim the car loan interest deduction if I refinance?
If you refinance a car loan, you still may be able to deduct interest paid on the new loan. However, “you can only deduct the interest from a refinanced loan if both the original loan and the related vehicle met all of the deduction’s requirements,” says Victoria Adams, an enrolled agent and TurboTax Expert based in Aberdeen, Wash. The new loan also must be secured by a first lien on the same vehicle. However, you can only deduct interest paid on the outstanding balance of the new loan as of the date of the refinancing. What are the pros and cons of refinancing your car loan?
Q2: Do I have to itemize to claim the car loan interest deduction?
If you qualify, “you can deduct interest on a car loan whether you itemize or not,” says Adams. That’s because the car loan interest deduction is a “below-the-line” deduction, which means it’s reported on Form 1040 below the line for adjusted gross income (AGI). You can claim below-the-line deductions whether you claim the Standard Deduction or itemized deductions on your tax return. Are you better off claiming the Standard Deduction or itemized deductions?
Q3: Can I claim the car loan interest deduction if I pay off the loan on a car I inherited?
Generally, you can only deduct interest paid on a qualified motor vehicle loan if you’re the one who took out the loan. So, if someone else assumes the debt, they typically can’t deduct interest paid on the loan.
But what if you inherit the vehicle tied to the qualified loan? In this case, the loan remains a qualified loan for purposes of the car loan interest deduction if it continues to be secured by a first lien on the vehicle. If you inherit a car, check to see if you owe state inheritance tax on it.
Q4: Is there a limit on the price of a qualified vehicle that’s used to claim the car loan interest deduction?
There’s no limit on the price of a qualified vehicle, but the deduction is limited to $10,000 of qualified interest paid during the tax year. Check out this auto loan calculator to see how much you may be able to borrow.
Q5: Can I deduct interest on a loan used to buy a pre-owned car that’s new to me?
No. The car loan interest deduction is only available if you’re the original owner of the motor vehicle purchased with your loan. See if you can deduct your car registration fees.
Q6: How do I determine if a vehicle was assembled in the U.S.?
Only vehicles assembled in the U.S. are qualified vehicles for purposes of the car loan interest deduction. To find out where a motor vehicle is assembled, you can rely on (1) the final assembly point shown on the vehicle’s window sticker, or (2) the “plant of manufacture” associated with the vehicle’s VIN. Enter your vehicle’s VIN in the National Highway Traffic Safety Administration’s “VIN Decoder” to identify your vehicle’s manufacturing plant.
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