How the car loan interest deduction works
- Check the five requirements in the calculator: new vehicle, U.S. final assembly, loan after 2024, personal use, and a loan secured by the car.
- Find the interest you paid in the year. Your lender reports it. If you don't have it yet, the calculator estimates it from your loan amount, rate, term and first payment date.
- Apply the $10,000 cap.
- Apply the phase-out: minus $200 for each $1,000 or fraction of $1,000 that modified AGI is over $100,000 ($200,000 joint).
Examples
| Situation | Interest paid | Deduction |
|---|---|---|
| $42,000 at 7.5% for 72 months, first payment March 2026, single, $78,000 | About $2,490 in 2026 (10 payments) | About $2,490 |
| Single, $120,600 MAGI, $12,000 interest | $12,000 | $5,800 (cap $10,000 − $4,200) |
| Married, $260,000 MAGI | Any | $0 (fully phased out) |
Common questions
Which cars qualify for the car loan interest deduction?
New cars, minivans, vans, SUVs, pickup trucks and motorcycles under 14,000 pounds gross vehicle weight rating, with final assembly in the United States, bought for personal use with a loan that started after December 31, 2024. Used cars and leases don't qualify.
How do I know if my car was assembled in the U.S.?
The window sticker on the dealer's lot lists the final assembly location. You can also enter your VIN in the NHTSA VIN Decoder, which shows the plant of manufacture.
How much can I deduct?
Up to $10,000 of interest per year. The amount drops by $200 for each $1,000 (or part of $1,000) your modified AGI is over $100,000, or $200,000 for joint filers. It's gone at $150,000 single and $250,000 joint.
Do I need to itemize?
No. You claim it on Schedule 1-A whether you take the standard deduction or itemize. You must include the vehicle's VIN on your return.
Does a refinanced loan qualify?
Generally yes, if the original loan qualified. Interest on the refinanced amount is generally eligible.
Can I deduct interest on a car I use for work?
Not under this rule; the car must be for personal use. Business vehicle interest may be deductible under the regular business rules instead.
How long does the deduction last?
Tax years 2025 through 2028 under current law.
Other new deductions
Sources
- IRS FS-2025-03: Tax deductions for working Americans and seniors
- IRS: Tax year 2026 inflation adjustments (Rev. Proc. 2025-32)
- IRS: Schedule 1-A and instructions
- NHTSA VIN Decoder (plant of manufacture)
See how Taxlumo calculates for every formula and test case.