For 2025–2028 you can deduct up to $10,000 a year of interest on a loan used to buy a new car, SUV, van, pickup or motorcycle (under 14,000 lbs) with final assembly in the United States, if the loan started after December 31, 2024 and is secured by the vehicle. The cap falls by $200 per $1,000 of MAGI over $100,000 ($200,000 joint). You claim it on Schedule 1-A without itemizing and must list the VIN.
The rules, line by line
- New vehicles only — the original use must start with you. Used cars and leases don’t qualify.
- Final assembly in the U.S. — check the vehicle information label on the window, or decode the VIN with NHTSA’s VIN decoder (the plant code). A U.S. brand isn’t enough; neither is a foreign brand a disqualifier.
- Personal use, with a loan secured by a lien on the vehicle and originated after December 31, 2024. Refinancing a qualifying loan generally keeps the interest eligible.
- VIN on the return each year you claim it. Lenders must send an interest statement.
What a typical new-car loan produces
Take a $40,000 loan at 7.5% for 72 months (payment $691.60). Interest is front-loaded, which suits a deduction that expires after 2028:
| Your bracket | Tax saved 2026 | Saved 2026–2028 |
|---|---|---|
| 12% bracket | $338 | $856 |
| 22% bracket | $619 | $1,569 |
| 24% bracket | $675 | $1,712 |
That’s real money, but far from $10,000 of tax: the cap is on interest, and the saving is interest × your bracket. To hit the $10,000 interest cap you’d need roughly a $130,000 loan at 7.5%.
Example: Priya, $65,000, new SUV
Priya is single, earns $65,000 and paid $3,100 of interest in 2026 on a loan for a new SUV assembled in Kentucky. Her W-4 is standard, so payroll ignored the car. The deduction lowers taxable income by $3,100, and her estimated refund is about $372 — her taxable income before the deduction ($48,900) sits just inside the 12% bracket, so each deducted dollar saves 12 cents. Full numbers on the $65,000 refund page.
Earning $130,000? The cap is $10,000 − $200 × 30 = $4,000, so most normal loans still fit — see the $130,000 example.
Add your car-loan interestEnter your wages, withholding, kids and any tips or overtime — the estimator applies every rule on this page.
Frequently asked questions
Is car loan interest tax deductible in 2026?
Yes, for 2025–2028, up to $10,000 a year of interest on a loan for a new, U.S.-assembled personal vehicle, if the loan was taken out after December 31, 2024. It phases out above $100,000 MAGI ($200,000 joint).
Do used cars qualify for the car loan interest deduction?
No. The vehicle’s original use must begin with you, so used vehicles and leases don’t qualify.
How do I know if my car was assembled in the U.S.?
Check the final assembly point on the vehicle information label or decode the VIN with NHTSA’s VIN decoder, which shows the plant of manufacture.
Do I need to itemize to deduct car loan interest?
No. It’s claimed on Schedule 1-A and is available with the standard deduction.
How much tax does the car loan deduction save?
Interest paid times your tax bracket. $3,000 of interest saves $360 at 12% or $660 at 22%.
Related tax refund guides
- Standard deduction 2026: $16,100 / $32,200 / $24,150Plus the 65+ add-ons and when itemizing wins.
- No tax on overtime explained (2026)Only the “half” counts — up to $12,500 / $25,000.
- The $6,000 senior deduction for 2026Age 65+ bonus deduction, phase-out and refund impact.
- When will I get my tax refund in 2027?21-day e-file rule, PATH Act hold for EITC/ACTC, and a date chart.
- Where’s My Refund? Tracking your 2027 refundWhat the three status bars mean and when to worry.
- Tax filing deadline 2027: April 15Key dates, extensions and what being late really costs.
- Why is my tax refund smaller this year?Eight common reasons, each with a dollar example.
- Tax refund on a $65,000 salaryWorked example by filing status
Sources & method
- IRS Fact Sheet FS-2025-03, “Tax deductions for working Americans and seniors” (Jul 14, 2025; updated Jul 25, 2025): tips, overtime, senior and car-loan-interest deductions, 2025–2028.
- Public Law 119-21 (One Big Beautiful Bill Act, signed Jul 4, 2025), IRC §§224, 225, 151(d)(5)(C), 163(h)(4) — phase-out rates.
- IRS Rev. Proc. 2025-32 (Oct 9, 2025): 2026 tax brackets, standard deduction ($16,100 / $32,200 / $24,150), additional 65+ amounts, EITC table, CTC $2,200 — as summarized by KPMG TaxNewsFlash and Current Federal Tax Developments (Oct 2025).
- Our refund model: one W-2 job, wages only, federal income tax only (Social Security and Medicare are never refunded), Form W-4 filled out with just the filing-status box (Pub 15-T standard tables), no pre-tax 401(k). These are estimates, not tax advice — your Form 1040 decides the real number. Parameters checked 2026-11-03.