This year, Americans can do something they haven’t been able to do since 1991: deduct car loan interest payments on their federal income tax return. Thirty-five years ago, you could deduct up to 10% of the interest you paid in 1990 on a car loan. But that tax break went away. That is, until this year, when you now might be able to deduct up to $10,000 of car loan interest paid in 2025 on the tax return you’ll file this year.
The current car loan interest deduction was enacted as part of the “One Big Beautiful Bill,” which was signed into law in July 2025. It can literally save you hundreds—or even thousands!—of dollars … but only if you qualify.
Several rules limit who can claim the car loan interest deduction, or the amount you can deduct. But don’t worry! We’ll cover all the critical requirements for this valuable tax break so you’ll know if you’re eligible and, if so, how much interest you can write-off.
Table of Contents
Only New Vehicles Qualify for the Deduction
You can claim the car loan interest deduction only if your loan was used to buy a new car, minivan, van, sport utility vehicle (SUV), pickup truck, or motorcycle. Interest paid on loans to buy a used vehicle isn’t deductible.
A vehicle is still considered “new” if the dealer uses it for test drives or as a loaner vehicle, as long as the dealer didn’t register or title the vehicle in its name.
Your Vehicle Must Be Assembled in the U.S.
In addition to helping Americans who buy cars and trucks, the car loan interest deduction is also designed to help American car makers. That’s why the deduction is only allowed if your loan was used to buy a motor vehicle with a final assembly point in the U.S.
The vehicle’s “window sticker” will tell you where it was assembled. You can also use the National Highway Traffic Safety Administration’s online VIN Decoder to find the final assembly point (simply type in the vehicle identification number).
Related: “No Tax on Overtime” Deduction: How Does It Work?
There’s a Weight Limit for Your Vehicle
To claim the car loan interest deduction, your vehicle’s gross vehicle weight rating (GVWR) must be less than 14,000 pounds. GVWR is basically the manufacturer’s maximum recommended weight when fully loaded with passengers, fuel, cargo, equipment, or anything else.
This weight requirement won’t be a problem for most non-commercial vehicles. However, if you plan to take the deduction, you should double check the GVWR before purchasing a vehicle. You can ask the dealer or check the sticker attached to the driver-side door jamb to determine the GVWR.
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Only “Personal Use” Vehicles Qualify for the Deduction
The car loan interest deduction is only available if, at the time you take out your loan, you intend to drive your new vehicle for personal use more than 50% of the time. You can still take the deduction if things change later and you end up using the vehicle for business more than 50% of the time (e.g., you start driving for Uber).
If you drive your vehicle for both personal and business reasons, you might be able to write-off some of your car loan interest payments as a business expense (e.g., on Schedule C). But you can’t “double dip” and also deduct that interest again through the car loan interest deduction.
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Off-Road Vehicles Generally Don’t Qualify for the Deduction
Another requirement for the car loan interest deduction is that the vehicle you purchase with your loan must be manufactured primarily for use on public streets, roads, and highways.
So, unless you can show that your particular vehicle was made for use of public roadways, you likely can’t claim the deduction if you borrow money to buy a golf cart, race car, farm tractor, or other vehicle typically used for “off-road” purposes.
Related: New SALT Deduction Cap: How It Works and Who It Helps
Only Certain Loans Qualify for the Deduction
In addition to the most important vehicle requirements discussed above, there are a few rules about the loan itself that you need to know, too. For instance:
- The car loan interest deduction is only available if your loan was taken out after 2024. If you have an older loan, you’re out of luck.
- You also can’t claim the deduction if you lease a motor vehicle or borrow money from a relative to buy one.
- Loans used to buy a vehicle with a salvage title or intended to be used for scrap or parts, or to purchase a fleet of vehicles are ineligible as well.
Related: 4 New Tax Deductions In the ‘One Big Beautiful Bill’
How Do You Calculate the Deduction?
You can generally deduct up to $10,000 of qualified car loan interest per year. So, for example, if you paid $15,000 in eligible interest for the year, you can only deduct the first $10,000 of that amount. The remaining $2,000 isn’t deductible.
If you’re married and file a joint return with your spouse, the deduction is still capped at $10,000. However, if two married people file separate returns, the $10,000 limit applies separately to each of their returns.
In addition to the $10,000 cap, the car loan interest deduction is gradually reduced if your modified adjusted gross income (MAGI) exceeds $100,000 ($200,000 for joint filers). If this phase-out applies, your deduction is cut by $200 for each $1,000 of MAGI over the $100,000 (or $200,000) limit.
Example: Cindy is single and paid $8,000 of qualified car loan interest in 2025. Her MAGI for 2025 is $122,000. Since her MAGI is $22,000 over the $100,000 limit for single people, Cindy’s $8,000 deduction is reduced by $4,400. To calculate the reduction, first divide $22,000 by 1,000, which equals $22. Then multiple that amount by $200, which comes to $4,400. As a result, Cindy can only deduct $3,600 of her car loan interest ($8,000 – $4,400 = $3,600).
Based on this formula, the maximum $10,000 deduction is completely phased out if your MAGI reaches $150,000 ($250,000 for a joint return). If your interest payments for the year are less than the $10,000 maximum, a lower MAGI amount will reduce your deduction to $0.
Young and the Invested Tip: Unless you claim deductions or tax exemptions for foreign income or housing costs, or have tax-exempt income from certain U.S. territories, your MAGI will be the same as your adjusted gross income (AGI) reported on Line 11a of Form 1040 or Form 1040-SR.
Related: When Are Taxes Due? [2026 Tax Deadlines]
How Do You Claim the Deduction?
You must calculate and claim the car loan interest deduction on Schedule 1-A. You must provide the vehicle’s VIN on Schedule 1-A.
The amount of your car loan interest deduction is added to any deductions for tips, overtime, and seniors—with the combined total reported at the very end of Schedule 1-A. That total is then reported on Line 13b of Form 1040 or Form 1040-SR, where it’s subtracted from your AGI to arrive at your federal taxable income.
You can also claim the car loan interest deduction whether you claim the standard deduction or itemized deductions.
Related: What’s the Average Tax Refund This Year?
How Do You Determine the Amount of Car Loan Interest You Paid During the Year?
If you paid at least $600 of deductible car loan interest in 2025, your lender should have sent you a statement showing the total amount of interest you paid during the year. The statement can be sent through the mail or made available through an online portal.
Related: When and How to Adjust Your Tax Withholding
If you didn’t receive a statement (e.g., if you didn’t pay at least $600 of interest last year), you can rely on your own records, including monthly statements from the lender.
For interest paid in 2026 and later, you’ll get a Form 1098-VLI from your lender if you paid at least $600 of eligible car loan interest during the year. The amount of qualifying interest you paid for the year will be included on the form.
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Will the Car Loan Interest Deduction Expire?
Unfortunately, the car loan interest deduction is only available through the 2028 tax year. So, as it stands right now, you only have four years to claim it (2025 to 2028 tax years).
The deduction could be extended past 2028 or even made permanent. However, whether that happens will likely depend on who controls Congress and/or the White House after the 2028 elections.
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