Guide · Taxes

Car Loan Interest Deduction (2025-2028): Who Qualifies

VNCNT Labs · Updated October 23, 2026 · 4 min read

Starting with the 2025 tax year, many Americans can deduct interest paid on a loan for a new personal vehicle, up to $10,000 a year, even if they take the standard deduction. The rules are strict, though: the car must be new, assembled in the U.S., bought with a loan taken out after 2024, and used mostly for personal driving. This guide walks through the requirements using the IRS's own guidance. It's general information, not tax advice.

The basics

Years: tax years 2025 through 2028.
Maximum: $10,000 of qualified interest per return per year.
Who can claim it: both people who itemize and people who take the standard deduction. It's claimed on Schedule 1-A (Part IV), not on Schedule A.
Income limit: the deduction starts phasing out above $100,000 of modified adjusted gross income ($200,000 for joint filers).
VIN required: you must include the vehicle identification number on your return for each year you claim it.

Which loans qualify

According to the IRS, the interest must be on a loan that is:

Originated after December 31, 2024. A loan signed in 2024 doesn't qualify, even if payments continue into 2025.
Used to buy the vehicle. Lease payments don't qualify.
For a vehicle whose original use starts with you. In other words, a new vehicle. Used vehicles don't qualify.
For personal use, not business or commercial use.
Secured by a lien on the vehicle.

If a qualifying loan is later refinanced, the IRS says interest on the refinanced amount is generally still eligible. Extra cash taken out in a refinance isn't part of the original purchase debt.

Which vehicles qualify

A qualified vehicle is a car, minivan, van, SUV, pickup truck or motorcycle with a gross vehicle weight rating under 14,000 pounds that underwent final assembly in the United States.

Brand doesn't decide this. Plenty of foreign-brand vehicles are assembled in U.S. plants, and some U.S.-brand models are built elsewhere. The IRS points to two ways to check:

The window sticker. The vehicle information label on new cars at the dealer lists the final assembly point.
The VIN. The plant of manufacture is encoded in the VIN, and the National Highway Traffic Safety Administration's free VIN decoder shows it. The IRS says you may rely on the plant of manufacture reported through the VIN.

How the income phase-out works

Above the threshold, the $10,000 cap is reduced by $200 for every $1,000 (or part of $1,000) of modified AGI over $100,000, or over $200,000 on a joint return. That means the deduction disappears completely at $150,000 for single filers and $250,000 for joint filers.

Maximum deduction by modified AGI (single filer)
Modified AGI	Amount over $100,000	Reduction	Maximum deduction
$95,000	$0	$0	$10,000
$110,000	$10,000	$2,000	$8,000
$120,500	$20,500 (rounds up to 21 thousands)	$4,200	$5,800
$135,000	$35,000	$7,000	$3,000
$150,000	$50,000	$10,000	$0

The cap only limits the deduction. Most buyers pay much less than $10,000 a year in interest. As a rough illustration, a $40,000 loan at 7% over five years charges a little under $2,600 of interest in its first year, and less each year after.

What it's worth

A deduction lowers taxable income, not tax owed dollar for dollar. If you deduct $2,500 of interest and your top federal bracket is 22%, the federal tax savings are about $550. Because it's claimed on Schedule 1-A, you get it whether or not you itemize.

Paperwork and records

Interest statement: lenders must report the interest they receive on qualifying loans and give borrowers a statement. The IRS has created Form 1098-VLI for this. For 2025, IRS Notice 2025-57 gave lenders transition relief: they could meet the requirement by making the year's total interest available to you, for example through an online account or a statement.
Keep: the purchase contract, loan agreement, window sticker or VIN decode showing U.S. assembly, and year-end interest statements.
Mixed use: the deduction is for personal-use vehicles. If you also drive for work, keep a record of personal versus business use and talk to a tax professional about how the rules apply to you.

Quick eligibility checklist

Did you sign the loan on or after January 1, 2025?
Was the vehicle new (you're the first user), not leased?
Is it a car, minivan, van, SUV, pickup or motorcycle under 14,000 lb GVWR?
Does the window sticker or VIN show final assembly in the U.S.?
Is the loan secured by a lien on the vehicle?
Is it mainly for personal use?
Is your modified AGI under $150,000 ($250,000 joint)?

If every answer is yes, the interest you paid during the year is likely deductible up to your cap.

Frequently asked questions

Do I need to itemize to deduct car loan interest?

No. The deduction is available to both itemizers and people who take the standard deduction. It's claimed on Schedule 1-A.

Does a used car qualify?

No. The vehicle's original use must begin with you, so only new vehicles qualify.

Can I deduct interest on a leased car?

No. The IRS says lease payments don't qualify.

How do I know if my car was assembled in the U.S.?

Check the vehicle information label (window sticker) or run your VIN through NHTSA's free VIN decoder, which shows the plant of manufacture.

What if I refinance?

Interest on a refinanced qualifying loan is generally still eligible, according to the IRS. Interest on extra cash taken out isn't.

This guide is general information, not tax advice. Check the IRS instructions for your tax year or ask a tax professional.