Car Loan Interest Tax Deduction: Can You Deduct It?
Is there a car loan interest tax deduction now? Yes, for many buyers. Under the 2025 tax law known as the One Big Beautiful Bill, you can deduct up to $10,000 a year of interest on a loan for a new personal-use vehicle for tax years 2025 through 2028. The vehicle must have had its final assembly in the United States, the loan must have been taken out after December 31, 2024, and the deduction phases out once modified adjusted gross income (MAGI) exceeds $100,000 ($200,000 for married couples filing jointly). You can claim it whether you take the standard deduction or itemize.
Not tax advice: this is a general summary based on IRS announcements. Tax rules have details and exceptions, and guidance can change. Check IRS.gov or talk to a tax professional before claiming the deduction.
Key Takeaways
- Maximum: $10,000 of interest per tax return per year.
- Years: tax years 2025–2028.
- Vehicle: new car, minivan, van, SUV, pickup or motorcycle under 14,000 lb GVWR, final assembly in the US, bought for personal use.
- Loan: originated after Dec. 31, 2024 and secured by a lien on the vehicle.
- Income limit: phases out above $100,000 MAGI ($200,000 joint); gone at $150,000 ($300,000 joint).
- VIN required: you must list the vehicle’s VIN on your tax return.
Who Qualifies for the Car Loan Interest Deduction?
| Requirement | What it means |
|---|---|
| New vehicle | The vehicle’s original use must start with you. Used cars do not qualify. |
| Personal use | Bought for personal, not business, use. |
| Type and weight | Car, minivan, van, SUV, pickup truck or motorcycle with a GVWR under 14,000 pounds. |
| US final assembly | Final assembly must take place in the United States. |
| Loan date | Loan originated after December 31, 2024. |
| Secured loan | The loan must be secured by a lien on the vehicle, and not from a related party. |
| Income | Full deduction up to $100,000 MAGI ($200,000 joint), then phases out. |
Leases generally do not count, because the deduction applies to interest on a loan used to buy the vehicle.
How the Income Phase-Out Works
The $10,000 cap is reduced by $200 for every $1,000 of MAGI above the threshold. That means the deduction disappears completely at $150,000 MAGI for single filers and $300,000 for joint filers.
| Filing status | Full deduction up to | Partial deduction | No deduction above |
|---|---|---|---|
| Single / head of household | $100,000 MAGI | $100,001–$150,000 | $150,000 |
| Married filing jointly | $200,000 MAGI | $200,001–$300,000 | $300,000 |
How to Check If Your Car Was Assembled in the US
- Find your VIN: it is on the driver-side dashboard (visible through the windshield), the door-jamb sticker, your registration and your loan paperwork.
- Check the plant of manufacture: the IRS says you may rely on the plant of manufacture reported in the VIN. The NHTSA VIN decoder shows this.
- Look at the window sticker: new-car labels list the final assembly point.
A brand does not decide eligibility: some foreign brands build cars in the US, and some American brands build certain models abroad.
How Much Can You Save?
The deduction reduces taxable income, not your tax bill dollar for dollar. Example: a $40,000 new-car loan at 7% for 60 months generates about $2,580 of interest in the first year. If you are in the 22% federal tax bracket, deducting that interest saves roughly $570 in federal tax that year. Savings get smaller each year as your balance and interest drop.
How to Claim It
- Keep your loan statements; lenders report interest received to the IRS and should give you a statement showing interest paid.
- Enter the VIN of the qualifying vehicle on your return for each year you claim the deduction.
- Claim it on your federal return whether you itemize or take the standard deduction; tax software and IRS forms include a section for it.
- Keep your purchase contract and window sticker in case you need to show the vehicle qualifies.
Car Loan Interest Before 2025 and Business Use
Before this law, interest on a personal car loan was generally not deductible. That is still true for loans and vehicles that do not meet the new rules, such as used cars. If you use a vehicle for business, you may be able to deduct a share of interest as a business expense under separate rules, depending on how you calculate vehicle expenses.
Common Mistakes to Avoid
- Assuming a used car qualifies; only new vehicles do.
- Assuming a brand is “American-made” without checking the plant of manufacture.
- Claiming interest on a loan taken out in 2024 or earlier.
- Forgetting the income phase-out or the VIN requirement.
- Counting a lease payment as loan interest.
Try the calculator: use our car loan calculator to estimate your monthly payment.
Car Loan Interest Deduction FAQ
For tax years 2025 through 2028, interest on a loan for a new, US-assembled vehicle bought for personal use can be deductible up to $10,000 a year, subject to income limits.
No. The IRS says the deduction is available to taxpayers who take the standard deduction and to those who itemize.
No. The deduction applies only to new vehicles whose original use begins with the taxpayer.
It phases out above $100,000 of modified adjusted gross income for single filers and $200,000 for joint filers, and is fully phased out at $150,000 and $300,000.
The IRS says you can rely on the plant of manufacture reported in the VIN, which the NHTSA VIN decoder shows. The window sticker also lists the final assembly point.
Generally no. The deduction is for interest on a loan used to buy a qualifying vehicle.
Tax years 2025 through 2028, for loans originated after December 31, 2024.
