Can You Deduct Car Loan Interest on Taxes?

Updated for tax years 2025 and 2026

A car loan interest deduction hit the road in tax year 2025, meaning potential extra tax savings for tons of car buyers. Part of the Working Families Tax Cuts (also known as the One Big Beautiful Bill), this temporary tax break lets you deduct interest paid on certain new vehicle loans. You just have to meet specific eligibility rules to claim it.

Let’s walk through how the car interest deduction works, who qualifies, and how to claim this tax benefit when you file your 2025 or 2026 tax return with TaxAct®.

What is the car loan interest tax deduction?

This car loan interest tax deduction (also called no tax on car loan interest) allows taxpayers to deduct up to $10,000 per taxable year for interest paid on a qualifying vehicle loan. This deduction is below-the-line, meaning it reduces your taxable income, but does not reduce your adjusted gross income (AGI). However, you can claim it even if you take the standard deduction — you don’t have to itemize.

Keep in mind that you can only deduct interest payments (up to $10,000 per year) on qualifying vehicle loans. Only the interest portion of your car payment is deductible (not the loan principal). This tax deduction for vehicle loans is also temporary and currently applies only to tax years 2025 through 2028. Reporting requirements change starting in tax year 2026, when lenders must begin issuing Form 1098-VLI for qualifying loans.

Who qualifies for the car loan interest deduction?

To be eligible to claim this tax break, you, your vehicle loan, and your car must meet specific requirements, which we’ve broken out for you below.

Your loan must:

• Be taken out after Dec. 31, 2024.
• Be secured by a lien on the vehicle — in other words, your lender must have a legal interest in the car until it’s paid off.
• Be used to purchase a qualified passenger vehicle. Refinanced loans may also qualify if the original loan and vehicle met all requirements, the refinanced loan is secured by a first lien on the same vehicle, and only interest on the outstanding balance at the time of refinancing is deductible. The original loan must have been taken out after Dec. 31, 2024.
• Include a valid vehicle identification number (VIN).
• Be issued by a legitimate lender or dealership.
• Include interest payments made during the tax year.

Your vehicle must:

• Be manufactured mainly for use on public roads.
• Have at least two wheels.
• Be a car, minivan, SUV, pickup truck, van, or motorcycle.
• Be assembled in the United States.
• Have a gross vehicle weight rating (GVWR) under 14,000 pounds.
• Be brand new (“new to you” used vehicles don’t qualify).

Note: Loans for campers and RVs do not qualify for the auto loan tax deduction under the final tax law, even if you use them as your primary residence.

You must:

• Be the original owner (the “original use” of the vehicle must start with you, meaning used cars don’t qualify).
• Purchase the vehicle for personal use. At the time you take out the loan, you must expect to use it for personal or family reasons more than 50% of the time. You may still qualify if you also use the vehicle for business (for example, rideshare driving), as long as personal use is your primary purpose. Interest you claim as a business expense cannot also be claimed under this deduction.
• Report the VIN on your tax return when claiming the deduction.
• Meet the income requirements (see next section).

What are the income limits for the car loan interest tax deduction?

The car loan interest tax deduction begins to phase out once your modified adjusted gross income (MAGI) exceeds:

• $100,000 for single filers
• $200,000 for joint filers (like a married couple filing jointly)

If your income falls below these income limits, you can claim the full deduction. Otherwise, your deduction amount gets reduced by $200 for every $1,000 you earn above the MAGI threshold.

For example, if your income is $105,000 as a single filer, your maximum deduction would be reduced by $1,000 ($200 x 5). In this case, your maximum deduction would be $9,000 instead of $10,000.

The deduction is fully phased out once your MAGI reaches $150,000 for single filers (including head of household and surviving spouses) or $250,000 for married couples filing jointly.

Unlike some other Working Families Tax Cuts deductions, married filing separately taxpayers can claim the car loan interest deduction. Each spouse may deduct up to $10,000 on their own return, subject to the same MAGI limits ($100,000 phaseout start / $150,000 fully phased out for each separate return).

What vehicles qualify for the car loan interest deduction?

You can claim the car interest deduction for most new vehicles that meet the above criteria.

The main thing is that the vehicle must be a qualified passenger vehicle, meaning it’s designed primarily for road use and not for commercial or recreational purposes.

Vehicles that typically qualify include:

• Sedans and new cars purchased through a dealership
• Minivans and SUVs used for personal use
• Pickup trucks and vans
• Motorcycles

Vehicles that don’t qualify include:

• RVs, campers, and other large vehicles with a GVWR of 14,000 or more
• Vehicles without a valid VIN
• Any vehicle not assembled in the U.S.
• Used or pre-owned vehicles

How to claim the car loan interest deduction on taxes

How you claim the deduction depends on the tax year. Use the table below to see what’s different for 2025 and 2026, then read the year-specific details that follow. TaxAct will ask for this information when you file with us.ur qualified vehicle loan. TaxAct will ask you for this information if you file with us.

How Lenders Report Car Loan Interest for Tax Year 2025

The IRS released guidance on how lenders will report qualified passenger vehicle loans under the new qualified vehicle deduction rules. Because this deduction was new in 2025, that tax year serves as a transition year for businesses and dealerships issuing vehicle loans.

If you financed a new vehicle in 2025, your lender should provide you with the amount of interest you paid during the year. For 2025 only, lenders can meet their reporting requirements by giving you this information in any of the following ways:

• Through an online portal that you can easily access
• On a monthly or annual statement
• By other similar means that clearly show your interest payments

Be on the lookout for emails or letters from your lender reporting your interest payments this tax season. This information will help you (and TaxAct) report the correct amount of interest on your tax return when claiming the auto loan interest deduction.

Form 1098-VLI: How to Claim the Car Loan Interest Deduction for 2026

Claiming the car loan interest deduction in tax year 2026 may differ from filing in 2025. For example:

• Lenders must issue Form 1098-VLI if you paid $600+ in qualifying interest
• Due to you by January 31, 2027
• Check Box 1 (interest), Box 2d (VIN), and Box 3a (loan origination date)
• Origination date must be after Dec. 31, 2024 for the loan to qualify
• Don’t estimate — use the form amount unless you have a documented reason to adjust

Claiming the deduction with TaxAct

If you file with TaxAct, the process will be straightforward. You’ll simply enter details from your vehicle loan when prompted by our tax software, including the amount of interest you paid during the year and your VIN. TaxAct will then help you determine your car loan interest tax deduction automatically using a new form called Schedule 1-A.

Keep in mind:

• You can claim this deduction even if you take the standard deduction — you do not have to itemize.
• If you use your vehicle for both personal and business purposes, you can still claim this deduction as long as you expected personal use to be primary when you bought the vehicle. You cannot deduct the same interest twice — any interest claimed as a business expense on Schedule C (or another business schedule) cannot also be claimed here. Self-employed filers can still write off eligible vehicle costs under existing business expense rules.

FAQs about the car loan interest deduction

The bottom line

The new car loan interest deduction is one of several tax changes introduced in the Working Families Tax Cuts, and it’s designed to help borrowers offset the high interest rates and rising cost of new vehicles. If you financed your new car through a dealership or another lender, this new deduction could help you cut down your income tax bill and enjoy some well-deserved tax savings.

When you’re ready to file, TaxAct can help guide you through claiming the auto loan interest deduction, along with any other tax benefits you qualify for.

This article is for informational purposes only and not legal or financial advice.

Car loan interest deduction not available with all TaxAct Online products.

All TaxAct offers, products and services are subject to applicable terms and conditions.

TaxAct® Xpert Assist is available as an added service to users of TaxAct’s online consumer and SMB 1120-S and 1065 products. This service is available at an additional cost and is subject to limitations and restrictions. Some tax topics or situations may not be included as part of this service. Review of customer return if requested is broad and does not include source documents. View full TaxAct Xpert Assist Terms and Conditions.

The OBBB is now also being referred to by lawmakers as the Working Families Tax Cut Act. You may see one or both names used in this article, but they refer to the same set of tax changes.

Citations

Internal Revenue Service. Instructions for Form 1098-VLI (12-2026) [Draft]. IRS, www.irs.gov/pub/irs-dft/i1098vli–dft.pdf. Accessed 9 Sept. 2026.
Internal Revenue Service. Notice 2025-57. Internal Revenue Bulletin, no. 2025-45, 3 Nov. 2025, www.irs.gov/irb/2025-45_IRB#NOT-2025-57.
Internal Revenue Service. “Treasury, IRS Provide Transition Relief for 2025 for Businesses Reporting Car Loan Interest Under the One, Big, Beautiful Bill.” IRS, 21 Oct. 2025, www.irs.gov/newsroom/treasury-irs-provide-transition-relief-for-2025-for-businesses-reporting-car-loan-interest-under-the-one-big-beautiful-bill.
National Highway Traffic Safety Administration. “VIN Decoder.” NHTSA, www.nhtsa.gov/vin-decoder. Accessed 9 Sept. 2026.