Car Loan Interest Deduction 2026: How the $10,000 Write-Off Works

Yes, you can now deduct car loan interest on your federal taxes, but only on a new, U.S.-assembled vehicle. The One Big Beautiful Bill Act created a deduction of up to $10,000 a year for interest on a loan used to buy a qualifying new vehicle for personal use, available for tax years 2025 through 2028. You can claim it whether or not you itemize, but it phases out at higher incomes and comes with strict rules on the vehicle and the loan. Here is exactly how it works. Because the rules are new and your situation is unique, confirm the details with a tax professional.

Key Takeaways

• You can deduct up to $10,000 of car loan interest a year, for tax years 2025 through 2028, even if you take the standard deduction.
• The vehicle must be new, for personal use, and have its final assembly in the United States.
• The loan must have originated after December 31, 2024 and be secured by a lien on the vehicle.
• The deduction phases out above $100,000 of modified AGI ($200,000 married) and disappears entirely above $150,000 ($250,000 married).
• You must put the vehicle identification number (VIN) on your tax return to claim it.

What is the car loan interest deduction?

The car loan interest deduction is a new above-the-line deduction created by the One Big Beautiful Bill Act (OBBBA), the 2025 tax law. It lets you subtract the interest you pay on a qualifying auto loan from your taxable income, up to $10,000 per year. Before this law, personal car loan interest was not deductible at all, so this is a genuinely new break for car buyers.

It is one of several new deductions in the same law. For the full set, see our complete OBBBA tax changes guide.

How much can you deduct?

You can deduct up to $10,000 of qualifying car loan interest each year. The deduction is “above the line,” which means you can claim it whether you itemize or take the standard deduction. It lowers your taxable income, so the actual cash value depends on your tax bracket. At the 22% bracket, deducting $3,000 of interest saves about $660 in federal tax.

For most buyers, total interest will be well under the $10,000 cap. You would need a large loan balance and a high rate to pay $10,000 of interest in a single year, so the cap mainly affects buyers of expensive vehicles early in the loan term.

Which vehicles qualify?

The vehicle must be a new passenger vehicle with its final assembly in the United States. Specifically, it must be a car, minivan, van, SUV, pickup truck, or motorcycle with a gross vehicle weight rating under 14,000 pounds, and it must be used by you first (used vehicles do not qualify).

The key catch is the U.S. final assembly requirement. The brand does not decide eligibility; the assembly location does. The same model can be assembled in different countries, so two identical-looking cars may have different eligibility. You can confirm a specific vehicle’s final assembly location from the window sticker (the Monroney label) or by entering the VIN into the U.S. Department of Transportation’s VIN decoder before you buy.

Which loans qualify?

The loan must meet three conditions: it originated after December 31, 2024, it was used to buy the qualifying vehicle for personal use, and it is secured by a first lien on that vehicle. A standard auto loan from a bank, credit union, or dealer financing meets these conditions.

What does not qualify: a lease (you are not buying the vehicle), a loan for a used vehicle, a loan taken out for business use, or borrowing not secured by the vehicle itself, such as a personal loan or a home equity loan you use to buy a car. Interest on those remains nondeductible for personal use.

What are the income limits?

The deduction phases out at higher incomes based on your modified adjusted gross income (MAGI). It begins to shrink once your MAGI passes $100,000 for single filers or $200,000 for married filing jointly, and it disappears entirely at $150,000 single or $250,000 married.

The reduction is $200 of deduction for every $1,000 of MAGI above the threshold. So a single filer with $120,000 of MAGI is $20,000 over the line, which cuts the maximum deduction by $4,000, leaving up to $6,000 deductible.

Filing status	Full deduction up to	Fully phased out at
Single / head of household	$100,000 MAGI	$150,000 MAGI
Married filing jointly	$200,000 MAGI	$250,000 MAGI

How do you claim it?

You claim the deduction on your federal return for each year you pay qualifying interest, for tax years 2025 through 2028. Two things are required: you must include the vehicle’s VIN on the return, and the interest must be reported correctly (lenders are being phased into reporting qualifying interest to borrowers and the IRS). Keep your loan statements showing the interest paid each year. Tax software will prompt you for the VIN and the interest amount.

How much is it really worth?

Consider a buyer who finances a $40,000 new, U.S.-assembled SUV at 7% over six years. In the first full year, they pay roughly $2,600 in interest. If they are under the income threshold and in the 22% bracket, deducting that $2,600 saves about $570 in federal tax. The savings are largest in the early years of the loan, when interest makes up more of each payment, and they shrink as the balance falls.

This is a deduction, not a credit, so it reduces taxable income rather than cutting your tax bill dollar for dollar. It does not change the price of the car or the loan, and it is not a reason on its own to take on debt you would otherwise avoid.

What does not qualify?

• Leased vehicles, because you are not purchasing the car.
• Used vehicles, including certified pre-owned.
• Vehicles assembled outside the United States, regardless of brand.
• Vehicles bought for business use (those follow separate business-expense rules).
• Loans not secured by the vehicle, such as personal loans or home equity loans.
• Interest paid in tax years before 2025 or after 2028, unless the law is extended.

FAQ

Can I deduct car loan interest on a used car?

No. The deduction applies only to new vehicles used by you first. Used and certified pre-owned vehicles do not qualify.

Does my car have to be made by a U.S. company?

No. What matters is final assembly in the United States, not the brand. A foreign brand assembled in a U.S. plant can qualify, while a U.S. brand assembled abroad does not. Check the window sticker or VIN decoder before buying.

Do I have to itemize to claim it?

No. This is an above-the-line deduction, so you can claim it whether you take the standard deduction or itemize.

What if my income is too high?

The deduction phases out above $100,000 of MAGI for single filers and $200,000 for married filing jointly, disappearing entirely at $150,000 and $250,000. Above those levels, you cannot claim it.

How long is this deduction available?

For tax years 2025 through 2028, unless Congress extends it. The loan must have originated after December 31, 2024.

Bottom line: The OBBBA lets you deduct up to $10,000 of interest a year on a new, U.S.-assembled vehicle bought for personal use, for tax years 2025 through 2028, even without itemizing. Confirm the vehicle’s final assembly in the U.S., keep the loan secured by the car, and watch the income phase-out that starts at $100,000 single or $200,000 married.

How to Claim This on Your 2026 Return

Now that you know the rules, here is how to actually claim it when you file. The step-by-step guides below cover which boxes to check on your W-2, where the deduction appears on Form 1040, and how the major tax software platforms handle it:

• How to Claim the Car Loan Interest Deduction on Your 2026 Return
• How to File Your 2026 Taxes (2027 Season): Complete Guide to Claiming the New OBBBA Deductions
• Best Tax Software for 2027: Which Handles the New Car Loan Deduction

This article is for educational and informational purposes only and is not tax advice. The IRS is still finalizing some rules, and figures and eligibility can change. We want you to feel informed, not rushed, so confirm how this applies to you with a qualified tax professional, or at irs.gov, before relying on it.