Question 1

Is car loan interest tax deductible in 2025 and 2026?

Accepted Answer

Yes. For tax years 2025, 2026, 2027, and 2028, qualified passenger vehicle loan interest can be deducted, up to $10,000 a year. The deduction was added by section 70203 of Public Law 119-21 (the One, Big, Beautiful Bill Act) and is claimed on Schedule 1-A, not on Schedule A. Personal car-loan interest was not deductible before 2025, and this exception ends for tax years beginning in 2029. A loan has to be originated after December 31, 2024, for a new personal-use vehicle with final assembly in the United States, and it has to be secured by a first lien.

Question 2

How much car loan interest can I deduct?

Accepted Answer

The annual cap is $10,000 per return, for every filing status. Two loans on one return share that one cap. The IRS instructions say you cannot deduct more than $10,000 of qualified interest you paid or accrued in the year. After the cap, the deduction is reduced by $200 for each $1,000, or part of $1,000, that your Schedule 1-A MAGI exceeds $100,000. Married filing jointly uses $200,000. Any fraction of $1,000 rounds up. A $10,000 deduction reaches zero at $150,000 of MAGI, or $250,000 if married filing jointly. A smaller interest amount reaches zero sooner.

Question 3

Which vehicles qualify for the car loan interest deduction?

Accepted Answer

An applicable passenger vehicle is a car, minivan, van, SUV, pickup truck, or motorcycle. It must be manufactured primarily for public roads, have at least two wheels, be treated as a motor vehicle under title II of the Clean Air Act, and have a gross vehicle weight rating under 14,000 pounds. Final assembly must have occurred in the United States. Original use has to start with you. A used car does not qualify. The IRS says you can rely on the vehicle information label at the dealer or on the plant of manufacture in the VIN. Brand name alone is not the test: a foreign-brand model assembled in the U.S. can qualify, and a U.S.-brand model assembled outside the U.S. does not.

Question 4

Do leases, refinances, or negative equity qualify?

Accepted Answer

Lease payments do not qualify. The final regulations exclude lease financing even when the arrangement might be treated as a sale for other tax purposes. Credit-card interest generally does not qualify because the debt is not secured by a first lien on the vehicle. Interest on a later refinancing can qualify only up to the outstanding balance of the qualified loan on the refinance date, and the new loan still needs a first lien on that vehicle. Negative equity rolled in from a trade-in is not qualified. Cash you take out is not qualified. Interest on the qualified and nonqualified parts is split pro rata.

Question 5

Can I deduct the interest if I take the standard deduction?

Accepted Answer

Yes. Section 70203 of Public Law 119-21 amended section 63(b) so the deduction is available to people who do not itemize. The 2025 Form 1040 instructions say you can claim it whether you take the standard deduction or itemize on Schedule A.

Question 6

How do I claim the car loan interest deduction on my tax return?

Accepted Answer

Complete Schedule 1-A, Part IV (“No Tax on Car Loan Interest”). Enter each VIN, subtract any interest already deducted on Schedule C, E, or F, apply the $10,000 cap, then apply the MAGI phase-out. Attach Schedule 1-A to Form 1040, 1040-SR, or 1040-NR. On a 2025 return the Schedule 1-A total goes to Form 1040 line 13b. You must report the VIN for every year you claim the deduction. Without the VIN, the regulations say the interest is not treated as qualified. Use the free calculator on this site to estimate the capped and phased-out amount before you fill the form.

Car loan interest deduction calculator

Estimate the deduction

How the IRS car loan interest deduction is figured

What has to be true before the number counts

Check the VIN plant of manufacture

Read the rule before you rely on the estimate

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