Car loan interest deduction: who qualifies and what it's worth

The car loan interest deduction lets you deduct up to $10,000 a year of interest on a loan for a new, US-assembled vehicle bought for personal use after December 31, 2024. It runs for tax years 2025 through 2028 and phases out above $100,000 of income ($200,000 for joint filers). On a typical $35,000 loan, the first-year tax savings land around $250 to $450. Use our auto loan calculator to see your own interest by year.

Here's who qualifies, how the phase-out works, and a worked example.

Who qualifies for the car loan interest deduction

Your loan generally has to meet all of these tests:

Requirement	What it means
New vehicle	Original use starts with you. Used cars don't qualify.
Final assembly in the US	The car was assembled at a plant in the United States. Brand doesn't matter; the plant does.
Personal use	You use it as a personal vehicle, not mainly for business.
Loan taken out after December 31, 2024	The debt was first incurred in 2025 or later.
Secured by the vehicle	A standard auto loan with a lien on the car.
Eligible vehicle type	Cars, minivans, vans, SUVs, pickups and motorcycles under 14,000 lbs.

A few common situations:

• Leases don't count. Lease payments aren't loan interest.
• Refinancing a qualifying loan typically still works, up to the original loan amount.
• Loans from family members or other related parties are generally excluded.
• Personal loans that aren't secured by the car don't qualify, even if you used the money to buy one.

To confirm where your car was built, use the free VIN decoder at nhtsa.gov. The window sticker also lists final assembly.

The $10,000 cap and the income phase-out

You can deduct up to $10,000 of interest per tax return per year. Most borrowers pay far less than that. You'd need a large loan at a high rate to hit the cap.

The deduction shrinks once your modified adjusted gross income (MAGI) passes:

• $100,000 for single filers
• $200,000 for married couples filing jointly

Above that, the maximum is reduced by $200 for each $1,000 (or part of $1,000) of MAGI over the threshold. That means it's gone completely at $150,000 single or $250,000 joint.

Example: a single filer with $110,000 of MAGI is $10,000 over. The cap drops by 10 × $200 = $2,000, to $8,000. That's still more than most people pay in interest, so they could deduct all of it. At $120,000 the cap is $6,000.

Worked example: a $35,000 new-car loan

Say you buy a new, US-assembled SUV in early 2026 and finance $35,000. The average new-car APR was 6.35% in Q2 2026 (Experian). Here's how much interest you'd pay in the first year and what the deduction could save you.

Loan	Monthly payment	Year 1 interest	Tax value at 12%	Tax value at 22%
$35,000, 6.35%, 60 months	$682.36	$2,046	$245	$450
$35,000, 6.35%, 72 months	$585.85	$2,080	$250	$458
$35,000, 9.00%, 72 months	$630.89	$2,963	$356	$652

The "tax value" is the interest times your federal bracket. That's how much less federal income tax you'd owe. A deduction is worth your marginal rate times the amount, not the full amount.

Interest falls each year as you pay down the balance. On the 60-month loan at 6.35%, yearly interest runs about $2,046, $1,644, $1,216, $760 and $275. Since the deduction ends after 2028, a 2026 loan gets three years of it (2026, 2027 and 2028). At 22%, that's roughly ($2,046 + $1,644 + $1,216) × 22% ≈ $1,079 over the life of the deduction.

What it's worth at other loan sizes

Here's the first-year interest and tax value for a few loan amounts, all at 6.35% for 60 months:

Loan amount	Monthly payment	Year 1 interest	Tax value at 12%	Tax value at 22%
$25,000	$487.40	$1,461	$175	$321
$35,000	$682.36	$2,046	$245	$450
$45,000	$877.32	$2,630	$316	$579
$60,000	$1,169.76	$3,507	$421	$772

Even a $60,000 loan comes nowhere near the $10,000 interest cap at today's average rate. The cap mostly matters for very large loans or high rates.

How you claim it

You claim the deduction when you file your federal return. It's an "above-the-line" style deduction, so you can take it with the standard deduction. You don't have to itemize.

Expect to report:

• The vehicle identification number (VIN)
• The interest you paid during the year

Lenders are expected to send interest statements for qualifying loans. Keep your purchase contract and loan documents in case you need them. The IRS website has the latest forms and instructions.

Your paycheck doesn't change. If you want the savings sooner, you could adjust your W-4 withholding. Our paycheck calculator can help you see the effect.

Should the deduction change which car you buy?

Usually not by much. A $450 tax break is real money, but it's small next to the price of the car and the total interest. On the 60-month loan above, you'd pay about $5,942 in interest overall.

A few points worth weighing:

• A lower rate beats a deduction. Cutting your APR from 9% to 6.35% on $35,000 over 72 months saves far more than the deduction is worth.
• Don't stretch the term for the tax break. A longer loan means more interest, and only part of it comes back.
• Assembly varies by model and year. Two versions of the same model can be built in different countries. Check the specific vehicle.
• High earners may get nothing. Above $150,000 single or $250,000 joint, the deduction is fully phased out.

Bottom line

If you bought or plan to buy a new, US-assembled car with a loan between 2025 and 2028, you may be able to deduct the interest. Most people will save a few hundred dollars a year. It's a nice bonus, not a reason to borrow more.

Plug your loan into the auto loan calculator to see your interest by year. If you're comparing financing, the personal loan calculator can show the cost of an unsecured option, though it wouldn't qualify for this deduction.