By Income Tax Service Editorial — Reviewed by Diyan Yap, EA (IRS Enrolled Agent) — Updated July 19, 2026
Quick answer: From 2025 through 2028, you can deduct up to $10,000 per year of interest on a car loan — without itemizing — if the loan started after December 31, 2024, the vehicle is for personal use, you’re its first owner, and it underwent final assembly in the United States. The deduction phases out above $100,000 of income ($200,000 joint). Leases don’t qualify.
Key facts:
- Deduct up to $10,000 of car loan interest per year, tax years 2025–2028
- Phases out for modified AGI over $100,000 single / $200,000 joint
- Loan must have originated after December 31, 2024 and be secured by the vehicle
- Vehicle must be personal-use, first-owned by you, GVWR under 14,000 lbs, with final assembly in the U.S.
- Leases do not qualify; the VIN goes on your tax return every year you claim it
Can you really deduct car loan interest now?
Yes — for the first time in decades, personal car loan interest is deductible, under a new rule in the One Big Beautiful Bill Act (OBBBA, amending IRC §163(h)). Personal interest like this had been non-deductible since the 1980s; OBBBA carved out a temporary exception for 2025 through 2028.
Two design choices matter. First, it’s an above-the-line style deduction — you get it even if you take the standard deduction, so it isn’t reserved for itemizers. Second, it’s aimed squarely at new, American-assembled, personally-used vehicles — a long list of conditions that disqualifies more purchases than most headlines suggest. Check the rules before you count the savings.
Which loans qualify?
Your loan qualifies if all of these are true:
- Originated after December 31, 2024 — interest on a loan you took out in 2024 or earlier never qualifies, no matter what you pay in 2026
- Secured by the vehicle — a lien on the car itself (standard dealer or bank financing does this; unsecured personal loans don’t)
- Used to purchase a vehicle you’re the first owner of — the deduction is for buyers of new vehicles, not used ones
- Personal use — business vehicles follow separate business-deduction rules instead
- Not a lease — lease payments never qualify, period
Refinancing: if you refinance a qualifying loan, interest on the refinanced balance generally remains eligible.
A note on dealer financing: the deduction doesn’t care whether the loan comes from a bank, credit union, or the dealer’s captive lender — only that it’s secured by the car and meets the dates and use tests. What does trip people up is rolling negative equity from a trade-in into the new loan: the portion of the loan that bought the new vehicle is what the deduction is designed for, so keep your purchase paperwork showing the price and financed amounts clearly separated.
Which vehicles qualify?
| Requirement | Test |
|---|---|
| Type | Car, minivan, van, SUV, pickup truck, or motorcycle |
| Weight | Gross vehicle weight rating under 14,000 lbs |
| Assembly | Final assembly in the United States |
| Use | Personal (non-business) |
| Ownership | You are the original user (new vehicle) |
The U.S.-assembly test is the one that surprises people: it depends on where the specific vehicle was assembled, not the badge on the hood. Plenty of “foreign” brands assemble popular models in U.S. plants, and plenty of “American” brands assemble models in Mexico or Canada. Check the vehicle information label on the driver’s-side door jamb, or run the VIN through the NHTSA VIN decoder before you buy — the answer decides a four-figure deduction.
How much can the deduction save you? (worked example)
Dana, single with $85,000 MAGI (under the $100,000 phaseout), buys a new U.S.-assembled pickup in January 2026 with a $42,000 loan at roughly 7% APR:
- First-year interest: approximately $2,800 (interest is front-loaded early in a loan)
- Dana’s top dollars fall in the 22% bracket
- Federal tax saved: $2,800 × 22% ≈ $616 in year one
Savings shrink each year as the loan amortizes and interest falls. The $10,000 annual cap only comes into play for very large loans — for typical car loans, your actual interest paid is the limit. Real money, but not “the government pays for your truck” money — buy the car that makes financial sense, then take the deduction it earns.
How do you claim it?
- Report the VIN on your return each year you claim the deduction — no VIN, no deduction.
- Watch for your lender’s statement. Lenders must report qualified interest (with transition relief for 2025, so 2025 statements were inconsistent — 2026 should be cleaner). Keep your own loan statements regardless.
- No itemizing needed — it stacks with the 2026 standard deduction.
- Married couples: the $200,000 joint MAGI phaseout is combined income — a high-earning spouse can price you out even if the buyer’s own income is modest.
What should you do now?
- Shopping for a car? Verify U.S. final assembly by VIN before signing — between two comparable models, the qualifying one carries a multi-hundred-dollar-a-year federal subsidy.
- Bought a new vehicle in 2025 or 2026? Dig out the loan date and VIN; if the loan post-dates December 31, 2024 and the vehicle qualifies, claim it.
- Shopping for an EV? Note that the federal EV purchase credits ended September 30, 2025 — this interest deduction is what remains, and it applies to gas and electric vehicles alike if assembled in the U.S.
- Near the income phaseout? Pre-tax retirement or HSA contributions can pull MAGI under the line. An IRS Enrolled Agent can tell you whether you clear it before you commit to the purchase.
FAQ
Does a used car qualify for the interest deduction? No. The deduction requires the vehicle to be originally used by you — meaning new vehicles. Used-car loan interest isn’t deductible under this rule.
My car was assembled in Mexico — do I qualify? No. Final assembly must have occurred in the United States, regardless of brand. Check the door-jamb label or NHTSA VIN decoder — the specific unit’s assembly plant is what counts.
Do lease payments count? No. Leases are excluded entirely — only loan interest on a purchased vehicle qualifies.
Can I deduct interest on my 2023 car loan in 2026? No. Only loans originated after December 31, 2024 qualify, no matter when the interest is paid.
Does this stack with the standard deduction? Yes — you don’t need to itemize. It’s claimed alongside the standard deduction like the new tips and overtime deductions.
What happens after 2028? The deduction expires after tax year 2028 unless Congress extends it — worth factoring into a 6-year loan decision.
Sources
- IRS: One Big Beautiful Bill provisions for individuals and workers
- IRS: Tax inflation adjustments for tax year 2026
This article is for educational purposes only and is not tax, legal, or financial advice. Tax rules change and individual situations vary — consult a qualified tax professional about your specific circumstances.