Car loan interest deduction: rules for new US-built vehicles
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For tax years 2025 through 2028, you can deduct up to $10,000 a year of interest on a loan used to buy a new passenger vehicle for personal use. The vehicle must have its final assembly in the United States. Like the other new deductions, it goes on Schedule 1-A, so you do not need to itemize.
Which vehicles qualify
All of these must be true:
- The vehicle is new. The original use starts with you. Used cars do not qualify.
- Final assembly took place in the United States. The vehicle’s information label shows the final assembly point, and the VIN decoder from NHTSA can confirm the plant.
- It is a car, minivan, van, SUV, pickup truck or motorcycle with a gross vehicle weight rating under 14,000 pounds.
- You use it for personal purposes, not mainly for a business.
Which loans qualify
- The loan was taken out after December 31, 2024.
- The loan was used to buy the vehicle and is secured by a lien on it.
- It is a purchase loan. Leases do not qualify.
- The loan is not from a family member or other related party.
You must put the vehicle identification number (VIN) on your tax return.
How much you can deduct
You deduct the interest you paid in the year, up to $10,000. The cap goes down by $200 for each $1,000, or part of $1,000, of modified adjusted gross income above $100,000, or $200,000 on a joint return. A single filer with MAGI of $150,000 loses the whole $10,000 cap.
| MAGI (single) | Largest deduction |
|---|---|
| $100,000 or less | $10,000 |
| $110,000 | $8,000 |
| $125,000 | $5,000 |
| $150,000 or more | $0 |
Most auto loans charge far less than $10,000 a year in interest. On a $40,000 loan at 7%, first-year interest is about $2,600.
How to claim it
- Get the yearly interest statement from your lender. Lenders that receive $600 or more of interest must report it to you and the IRS.
- Check the final assembly point on the window sticker or with the VIN decoder.
- Enter the interest and the VIN on Schedule 1-A of Form 1040.
Common questions
Does a used car qualify for the car loan interest deduction?
No. The vehicle must be new, with the original use starting with you.
Do leased vehicles qualify?
No. Only loans used to buy the vehicle qualify. Lease payments are not interest on a purchase loan.
How do I know if my car was assembled in the US?
Look at the final assembly point on the vehicle’s label, or enter the VIN in the NHTSA VIN decoder. The 11th character of the VIN identifies the plant.
Can I deduct interest on a loan I took out in 2024?
No. Only loans taken out after December 31, 2024 qualify.
Do I have to itemize to claim car loan interest?
No. The deduction is on Schedule 1-A and is available if you take the standard deduction.
Updated: November 1, 2026. Based on 26 U.S. Code § 163(h) and IRS guidance on the 2025 tax law.