Key Takeaways
New temporary tax break (2025–2028): Thanks to the OBBBA, eligible taxpayers can deduct up to $10,000 per year in car loan interest on new, U.S.-assembled vehicles purchased for personal use.
Eligibility depends on income and vehicle rules: The deduction is subject to MAGI income limits, applies only to new (not used or leased) vehicles under 14,000 pounds, must be financed with an auto loan, and requires final assembly in the U.S.
You do not need to itemize to claim the deduction, but the $10,000 cap is per taxpayer (not per vehicle), may be reduced for higher incomes or mixed business/personal use, and requires proper documentation.
What is The Car Loan Interest Deduction?
Under U.S. law as of tax year 2025, a new temporary federal deduction for car loan interest was created by the One Big Beautiful Bill Act (OBBBA). This changed the traditional rule about personal auto loan interest not being deductible. Eligible taxpayers can now deduct up to $10,000 of interest paid on a qualifying car loan each year on their federal income tax return through 2028.
Eligibility Requirements
Previously, interest deductions for auto loans were reserved for those used for business purposes only. Now, individual taxpayers can take the deduction for qualified vehicles purchased between January 1, 2025, and December 31, 2028, if the following criteria are met:
- Income does not exceed the threshold for your filing status (see chart below).
- The vehicle purchased is new (not used or a lease) and driven for personal use.
- Must be financed with an auto loan.
- The vehicle cannot exceed 14,000 pounds.
- Must have final assembly done in the United States.
Eligible vehicles include cars, SUVs, minivans, trucks, and motorcycles that meet the qualifications above.
Income Thresholds
The income thresholds are based on your filing status. Depending on your modified adjusted gross income (MAGI), you may qualify for the full deduction, partial deduction, or none at all (ineligible).
| Filing Status | Full Credit Limit | Partial Credit Limit | Ineligible (No Credit) |
| Single | Up to $100k | $100k to $150k | Over $150k |
| Married Filing Jointly | Up to $200k | $200k to $250k | Over $250k |
If you fall within the partial credit income range, your deduction will decrease by $200 for every $1,000 over the full credit limit for your filing status. Those who have a MAGI of $150,000 ($250k for married filing jointly) are ineligible to take the deduction.
How to Claim The Car Loan Interest Deduction
For those who qualify for the car loan interest deduction, claiming it is fairly straightforward. You’ll need to use the new IRS Schedule 1-A and complete Part IV, No Tax on Car Loan Interest, and include it with your Form 1040 when filing.
Make sure to have the following documents on hand:
- Bill of sales
- Vehicle’s VIN
- Copy of your loan agreement
- Interest statement from the lender
Since this is a new deduction, lenders may provide the interest information by either sending out a monthly or annual interest statement or giving borrowers access to an online portal where that information is available.