Car loan interest deduction FAQ

Is car loan interest tax deductible in 2025 and 2026?

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.

What is the IRS car loan interest deduction, or “no tax on car loan interest”?

The IRS labels the deduction “No Tax on Car Loan Interest” on Schedule 1-A, Part IV. The Code calls the amount qualified passenger vehicle loan interest (QPVLI). It is also described as a vehicle loan interest deduction or an auto loan interest deduction. Those names refer to the same federal deduction.

It is a below-the-line deduction. On a 2025 return it flows from Schedule 1-A, line 38, to Form 1040 or 1040-SR, line 13b (Form 1040-NR, line 13c). It reduces taxable income. It does not reduce adjusted gross income.

How much car loan interest can I deduct?

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.

What is MAGI for the car loan interest deduction?

For this deduction, MAGI is Schedule 1-A, Part I, line 3. Start with Form 1040, 1040-SR, or 1040-NR, line 11b. Add excluded Puerto Rico income, Form 2555 lines 45 and 50, and Form 4563 line 15.

If you have none of those add-backs, the 2025 instructions say to enter line 11b directly on Schedule 1-A, line 3. MAGI for the car-loan phase-out is not the same formula as MAGI for every other credit. Use the Schedule 1-A definition.

Does the 2025 standard deduction for married filing jointly include car loan interest?

No. Publication 501 (2025) lists a $31,500 basic standard deduction for married filing jointly or a qualifying surviving spouse. That amount is separate from Schedule 1-A.

You can claim the car loan interest deduction whether you take the standard deduction or itemize. Do not add the interest to the $31,500, and do not put it on Schedule A. For 2026, Revenue Procedure 2025-32 sets the basic joint standard deduction at $32,200. Those 2026 amounts apply to returns filed in 2027.

Where do I claim the deduction on Schedule 1-A?

On the final 2025 Schedule 1-A, list each VIN on line 22. Column (ii) is interest you deduct on Schedule C, E, or F. Column (iii) is the rest. Line 23 adds column (iii). Line 24 is the smaller of line 23 or $10,000. Lines 25 through 29 apply the MAGI phase-out, and line 30 is the deduction.

The June 16, 2026 draft Schedule 1-A moves that math to lines 28 through 36 and adds yes-or-no questions for original use and U.S. final assembly. The draft says to enter the total on line 44 and on Form 1040 line 13a. The draft is marked “Do not file.” Use the final 2026 form when the IRS releases it.

Which vehicles qualify for the car loan interest deduction?

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.

Do leases, refinances, or negative equity qualify?

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.

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

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.

What documents do I need to claim the car loan interest deduction?

The IRS says taxpayers claiming this deduction will need a lender statement showing qualified passenger vehicle loan interest paid for the year, the vehicle identification number and purchase details, and documentation that the loan bought an applicable passenger vehicle for personal use (new to you, listed vehicle type, GVWR under 14,000 pounds, and U.S. final assembly).

For calendar year 2026 and later, lenders that receive $600 or more of specified passenger vehicle loan interest on one loan generally send Form 1098-VLI. For 2025, Notice 2025-57 gave interest recipients transition relief if they made a statement of the year’s interest available. Keep your loan contract, payoff or amortization summary, and the dealer label or VIN plant record even if no Form 1098-VLI arrives.

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

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.

What is Form 1098-VLI?

Form 1098-VLI, Vehicle Loan Interest Statement, is the information return for specified passenger vehicle loan interest under section 6050AA. A person who receives $600 or more of that interest on one loan during the calendar year, in a trade or business, files a separate form for that loan.

For 2025, Notice 2025-57 gave interest recipients transition relief if they made a statement of the year’s interest available. The December 2026 instructions cover calendar year 2026 and later. Box 1 is interest received. Box 2d is the VIN. Box 6 is original use. Box 7 is U.S. final assembly. You can still claim a deduction you qualify for when the lender is not required to file, but keep the loan records and report the VIN.

Does a VIN decoder prove final assembly in the United States?

The IRS allows you to rely on the plant of manufacture reported in the VIN, or on the final-assembly point on the label affixed to the vehicle. This site’s VIN check sends the VIN from your browser to NHTSA’s public vPIC decoder and shows the plant country NHTSA returns.

That reading is a helper. It is not the IRS making a determination, and it is not a reading of the paper label. If NHTSA has no plant country, use the label.

Is the deduction different for head of household or married filing separately?

The $10,000 cap is per return for every filing status. The final regulations say head of household uses the $100,000 MAGI threshold, not a separate threshold. The 2025 instructions say the same: $200,000 for married filing jointly, and $100,000 for all other filing statuses, which includes married filing separately and qualifying surviving spouse.

If spouses file separate returns, each return has its own $10,000 cap and its own $100,000 MAGI threshold for the interest that spouse can claim under the rules. Interest on a loan you are not an original obligor on generally is not yours to deduct.

Can I deduct car loan interest on a used car or a lease?

No. Used vehicles do not qualify because original use must start with you. Lease payments do not qualify. The final regulations exclude lease financing even when a lease might be treated as a sale for other federal income-tax purposes.

Buying out a lease and financing that purchase with a new first-lien loan after December 31, 2024, is a different transaction. The vehicle still has to meet original-use, U.S. final assembly, and the other applicable-passenger-vehicle tests. Most lease-end purchases fail the new-vehicle (original use) test because original use already began with the lessee.

Does refinancing my car loan keep the deduction?

Often yes, in part. If the original loan and vehicle met the rules, interest on a later refinancing can still be qualified passenger vehicle loan interest up to the outstanding qualified balance on the refinance date, and only if the new loan is secured by a first lien on that same vehicle.

Cash-out amounts and negative equity rolled into the new loan do not create qualified principal. Interest is allocated pro rata between the qualified and nonqualified parts. Adding a new borrower does not give the new borrower the deduction.

What if I use the car for rideshare or a side business?

Personal use is tested when you incur the debt. The 2025 instructions treat use while performing services as an employee as personal use for this test. Their example is a rideshare car expected to be used to earn income 15 percent of the time and personally 85 percent of the time; that purchase is for personal use. A vehicle you expect to use mostly in a business is not.

Interest you already deduct on Schedule C, E, or F goes in Schedule 1-A column (ii) and is not deducted again as QPVLI. Do not double-count the same dollars.

Do electric vehicles or foreign brands qualify if assembled in the U.S.?

Powertrain type is not the test. An EV, hybrid, or gasoline vehicle can qualify if it meets the applicable passenger vehicle definition, including U.S. final assembly and GVWR under 14,000 pounds, and the loan meets the other rules.

The brand’s headquarters country is not the test either. Final assembly in the United States is. Check the dealer’s vehicle information label or the plant of manufacture in the VIN with NHTSA’s decoder.

What if my lender does not send Form 1098-VLI?

You can still claim a deduction you otherwise qualify for. Keep the loan agreement, a year-end interest statement or amortization schedule, proof of the VIN, and evidence of U.S. final assembly. Report the VIN on Schedule 1-A.

Lenders generally file Form 1098-VLI only when they receive $600 or more of specified passenger vehicle loan interest on one loan in a calendar year, and 2025 had transition relief. Missing the form does not create the deduction, and having the form does not prove every eligibility test is met.

What if my vehicle is replaced under a lemon law?

TurboTax and similar guides note that if a qualified vehicle is replaced because of an unforeseen intervening event such as a lemon-law replacement, you include the VIN of the replacement vehicle on the return for the year you claim the deduction. Follow the final regulations and the year’s Schedule 1-A instructions for the exact treatment of the replacement loan and VIN.

This site does not replace those instructions. Keep the dealer and manufacturer paperwork that shows the replacement.

Will this lower my state income tax?

Not necessarily. This calculator estimates federal income tax only, and only if you enter a marginal rate. States do not all conform to Public Law 119-21. Check your state instructions before you assume the same deduction on a state return.

Does the calculator on carinterestdeduction.com file my return?

No. It runs in your browser and does not send your income, interest, or VIN to this site. The result follows the Schedule 1-A worksheet for the cap and phase-out. It is not a complete tax return, and it is not tax advice.

Use it to estimate qualified interest after the $10,000 cap and MAGI phase-out, then enter the matching figures on the official IRS Schedule 1-A when you file.

Sources

• 2025 Instructions for Form 1040. Line 13b comes from Schedule 1-A, line 38. The Schedule 1-A instructions define QPVLI, personal use, and the phase-out.
• 2025 Schedule 1-A (Form 1040). Part I MAGI lines 1–3 and Part IV lines 22–30. Line 38 is the total additional deductions.
• 2026 draft Schedule 1-A (created June 16, 2026). Draft — do not file. Part IV is lines 28–36. Line 44 goes to Form 1040 line 13a on this draft. Line numbers can change.
• Final regulations, Car Loan Interest Deduction (Sept. 8, 2026). Treasury Decision published at 91 FR. Effective November 9, 2026. Treas. Reg. §§1.163-16 and 1.6050AA-1 apply to tax years 2025–2028.
• Publication 501 (2025). 2025 standard deduction tables, including $31,500 for married filing jointly or qualifying surviving spouse.