New Car Loan Interest Deduction (2025-2028): Who and What Qualifies

By Shakeel Muzaffar, reviewed by Prof. Dr. Khalil Mudassar, PhD · Last updated 2026-10-04

Yes, car loan interest is deductible again, but only in a narrow new way. For tax years 2025 through 2028, you can deduct up to $10,000 of interest each year on a loan for a new, US-assembled, personal-use vehicle. The write-off shrinks as income rises and disappears at higher incomes.

Does Your New Car Qualify? The Eligibility Checklist

Start here, because the dollar amount only matters if the vehicle and loan pass every test. The IRS sets a short list of rules, and all of them must be true at once. Miss one, and the deduction drops to zero no matter how much interest you paid.

• New vehicle only. The original use must begin with you. Used vehicles do not qualify.
• Final assembly in the United States. Where the brand is headquartered does not matter; the assembly point does.
• Personal use. Business, commercial, and fleet vehicles are excluded.
• Weight and type limit. Gross vehicle weight rating must be under 14,000 lb. Eligible types are a car, minivan, van, SUV, pickup truck, or motorcycle.
• Qualifying loan. The loan must be originated after December 31, 2024, used to buy the vehicle, and secured by a first lien on it.

Two rules trip people up most. Leases do not count, because a lease is not a loan secured by a lien in your name. Related-party loans, such as one from a family member, generally do not count either. Qualifying refinances can still work, up to the original loan principal.

The flow below shows how one failed test ends the claim. You can test the exact figure once you confirm eligibility in the car loan interest deduction calculator.

Qualifies vs Does Not Qualify, Side by Side

The table pairs common situations with the outcome, so you can place your own case quickly.

How do you check the assembly point? Decode the vehicle VIN with the NHTSA decoder at vpic.nhtsa.dot.gov, or read the “Final Assembly Point” line on the window sticker (the Monroney label). The Department of Energy site fueleconomy.gov is a useful second source.

How Much Can You Deduct Before Income Cuts It Down?

The deduction starts at a $10,000 ceiling, then falls as modified adjusted gross income (MAGI) climbs past a threshold. For most filers that threshold is $100,000, and for married couples filing jointly it is $200,000.

Above the line, the deduction drops by $200 for every $1,000 (or part of $1,000) of MAGI over the threshold. Since a full $10,000 claim can only absorb a $50,000 reduction, the benefit ends at $150,000 for single filers and $250,000 for joint filers. For nearly all domestic taxpayers, MAGI simply equals adjusted gross income.

Here is the worked case our calculator uses. A single filer with MAGI of $120,000 who paid $6,000 of interest is $20,000 over the threshold. That is 20 steps of $1,000, so the reduction is 20 times $200, or $4,000. The deduction becomes $6,000 minus $4,000, which is $2,000. A married couple filing jointly with MAGI of $190,000 and $12,000 of interest stays under $200,000, so they keep the full $10,000 cap.

How Is This Different From Deducting a Car as a Business Expense?

This is a personal deduction, and that is what makes it new. Before 2025, personal car loan interest was not deductible at all. Interest only counted when the vehicle was used for business or self-employment, and even then only for the business share of use.

The new rule flips that for qualifying personal vehicles, but it does not replace the business route. If you drive for work and report self-employment income, your vehicle costs still follow the business-expense rules, not this provision. You can plan that side separately with the self-employment tax calculator.

One more contrast helps. This deduction is about interest, not the loan itself. To understand the monthly payment, total interest, and payoff on any auto loan, new or used, use the auto loan calculator. This article is about which of that interest the tax code now lets you write off.

How Do You Claim It, and What Should You Keep?

You claim it on your federal return, and you do not need to itemize. The IRS treats it as an above-the-line deduction, so it works alongside the standard deduction. It is reported on Schedule 1-A, Part IV, “No Tax on Car Loan Interest.”

Two records matter most. First, the vehicle identification number (VIN), which you must report on the return for every year you claim the deduction. Second, the interest you actually paid during the year, which your lender reports to you. The deduction is based on interest paid, not the loan balance or the sticker price.

Because the rule is temporary, timing counts. It applies to tax years beginning after December 31, 2024 and before January 1, 2029, and the loan itself must have originated after December 31, 2024. Unless Congress extends it, interest paid in 2029 and later will not qualify. You can compare this provision with the other 2025 changes on the finance calculators hub.

Car Loan Interest Deduction: Frequently Asked Questions

Sources and Further Reading

Educational information, not tax advice; confirm with the current IRS guidance and a tax professional. This provision is temporary (tax years 2025 through 2028) and figures can change if the law is amended or extended. Reviewed for accuracy by Prof. Dr. Khalil Mudassar, PhD. Last updated October 4, 2026.