Car loan interest deduction: full eligibility rules

For tax years 2025 through 2028, interest paid on a qualifying car loan is deductible above the line, on Schedule 1-A, meaning you get it whether you itemize or take the standard deduction. The cap is $10,000a year. The catch is eligibility: most car loans in America do not qualify, because the vehicle, the loan and the buyer's income all have to clear specific bars.

The vehicle must be new

“New” here has a specific legal meaning: original use of the vehicle must begin with you, the taxpayer. A demo model, a certified pre-owned car, or anything with a prior owner or prior title does not qualify, regardless of how few miles are on it.

Final assembly must be in the United States

This is the rule that disqualifies the largest share of otherwise-eligible buyers. The vehicle's final assembly point, not the badge on the hood, determines eligibility. Two trims of the same nameplate can differ: one assembled domestically, one imported, and only the domestically-assembled one qualifies. The calculator can look this up from a VIN using the same NHTSA registry that manufacturers report to.

Vehicle type and weight

Eligible vehicle types are car, minivan, van, sport utility vehicle, pickup truck, motorcycle. The vehicle's gross vehicle weight rating (GVWR) must be under 14,000 lbs, which rules out the heaviest full-size pickups and commercial-grade trucks even though pickups as a category are otherwise eligible.

Personal use, purchase, not lease

The loan must finance a personal-use purchase. Leases do not qualify at all, there is no interest deduction for lease payments under this provision. Vehicles used for business, including through a sole proprietorship, are also excluded from this particular deduction (business vehicle interest is handled under separate, existing rules).

The loan itself

The loan must have originated after 2024-12-31, and must be secured by a first lien on the vehicle being purchased. A loan that already existed before that date does not qualify even if you are still paying interest on it in 2026. Refinancing a loan that already qualified generally keeps it eligible, refinancing does not reset the origination date backward through a pre-2025 loan.

The regulations are still proposed

As of 2026-07-14, the Treasury regulations defining exactly what counts as an “applicable passenger vehicle”, covering the weight limit, final assembly test and original-use requirement, are proposed, not final. The substance is not expected to change materially, but treat the fine detail as provisional until Treasury finalizes it.

How the phaseout works

The deduction phases out above a MAGI threshold of $100,000 (single) or $200,000 (married filing jointly). For every $1,000 of MAGI over that threshold, rounded up to the next whole step, the deduction is reduced by $200. Round up matters here: even $1 into a new step costs the full per-step reduction, not a prorated amount.

Next steps

Run your own loan and MAGI through the Car Loan Interest Deduction Calculator to get a deductible amount, or the specific rule that disqualifies you if one applies. If you are also eligible for the tips, overtime or senior deductions, the Schedule 1-A guide covers all four together.