Working Families Tax Cuts
Car loan interest deduction: who qualifies and how much
For 2025 through 2028 you can deduct up to $10,000 a year of interest on a loan for a new car, SUV, pickup or motorcycle, if it was assembled in the United States and is for personal use. You do not need to itemize. Used cars and leases do not qualify.
The rules at a glance
Used vehicles and lease payments do not qualify. If you refinance a qualifying loan, the interest on the refinanced amount generally still counts.
| Requirement | Rule |
|---|---|
| Maximum deduction | $10,000 of interest a year |
| Years | 2025 through 2028 |
| Loan | Taken out after December 31, 2024, to buy the vehicle, and secured by a lien on it |
| Vehicle | New (the original use starts with you); car, minivan, van, SUV, pickup or motorcycle under 14,000 pounds gross vehicle weight rating |
| Where it was built | Final assembly in the United States |
| Use | Personal, not business or commercial |
| Phase-out | Down $200 for each $1,000 (or part) of modified AGI over $100,000; $200,000 joint |
| On the return | Schedule 1-A, Part IV, with the vehicle identification number (VIN) |
How the income limit works
Example: a single filer with modified AGI of $110,000 paid $4,000 of qualifying interest. They are $10,000 over the threshold, so the deduction drops by 10 × $200 = $2,000, leaving $2,000.
At $150,000 for a single filer, or $250,000 on a joint return, even the full $10,000 is phased out.
Checking where the car was assembled
The final assembly location is on the window sticker at the dealer. You can also decode the VIN: it shows the plant of manufacture, and the NHTSA VIN decoder looks it up for free.
The statement from your lender
Lenders that receive $600 or more of interest on a qualifying loan in a year must report it to the IRS and to you. For 2025 the IRS let lenders meet this by making the total interest available, for example on an online account, a monthly statement or an annual statement, so look there if no form came.
If you drive for Uber, Lyft or DoorDash
The new deduction is for personal-use vehicles. Self-employed people can already deduct the business part of their car loan interest on Schedule C, even when they use the standard mileage rate.
If the same car is used both ways, how the interest is split under the new rule is set out in proposed regulations that are not final, so have a preparer look at your loan, your mileage log and the VIN before you claim both.
State taxes
This is a federal deduction taken after adjusted gross income. Illinois starts from federal AGI, so it does not lower Illinois tax, and California did not adopt it.
Bought a car in 2025 or 2026?
Bring your loan statement and VIN. USTAXX prepares returns with the new Schedule 1-A and checks the car loan, overtime, tips and senior deductions. From $249, in Naperville, IL, or remotely.
Questions people ask
Is car loan interest tax deductible?
For 2025 through 2028, yes, up to $10,000 a year, if the loan was taken out after 2024 to buy a new, US-assembled vehicle for personal use, and your income is under the limits.
Does a used car qualify for the car loan interest deduction?
No. The original use of the vehicle has to start with you. Leases do not qualify either.
What is the income limit for the car loan interest deduction?
The deduction drops by $200 for each $1,000 of modified AGI over $100,000, or $200,000 on a joint return, and is gone at $150,000 single or $250,000 joint.
Do I need to itemize to deduct car loan interest?
No. It is claimed on Schedule 1-A, Part IV, with the standard deduction or with itemized deductions.
Where do I find the car loan interest I paid?
On your lender’s statement or online account. Lenders receiving $600 or more of qualifying interest must report it; for 2025 many show it on a portal or year-end statement instead of a tax form.
Where these rules come from
- IRS: Working Families Tax Cuts, individuals and workers (no tax on car loan interest)
- IRS FS-2025-03: Tax deductions for working Americans and seniors
- IRS: Schedule 1-A, Additional Deductions (FS-2026-04)
- IRS IR-2025-129: Guidance on the new deduction for car loan interest
- NHTSA VIN decoder
General information, current when written, not advice about your situation. Fees and forms change; the official pages above are the authority.