Car loan interest deduction: common questions
The deduction lets you subtract up to $10,000 a year of interest on a loan for a new, U.S.-assembled car, for tax years 2025 through 2028. These answers cover the situations that trip people up.
Follows Schedule 1-A and the final IRS regulations (September 2026). Last checked October 2026.
About the car
Does a leased car qualify? What about a lease buyout?
No to both. Leases don’t qualify. Buying out your lease doesn’t either, because the car’s original use began with the leasing company, not you.
Can I deduct interest on a used car?
No. The car has to be new, with its first use starting with you. One exception: a dealer demo car that the dealer held for sale can still qualify. A dealer loaner or service car generally can’t.
How do I know if my car was assembled in the U.S.?
You can rely on either the plant shown by the NHTSA VIN decoder or the “final assembly point” on your window sticker. The brand doesn’t matter: a Toyota Camry built in Kentucky qualifies, a Ford Maverick built in Mexico doesn’t. Check your VIN or see our list of U.S.-assembled models.
Do motorcycles count?
Yes. New motorcycles made for public roads can qualify, as long as final assembly was in the U.S. and the other rules are met. Check the VIN.
Is there a weight limit?
The vehicle’s gross vehicle weight rating must be under 14,000 lb. Nearly all cars, SUVs and light pickups pass. For heavy-duty pickups, check the rating on the driver’s door-jamb sticker.
Can I buy the car for my spouse or child?
Yes. Use by your spouse and certain relatives counts as personal use.
About the loan
What kinds of loans count?
The loan must be taken out after December 31, 2024 to buy the car, and secured by a first lien on it. Personal loans, credit cards, and loans from a relative or a business you own don’t qualify.
Does interest on sales tax, fees or an extended warranty count?
Yes. If they’re financed in the same car loan, interest on sales tax, title and registration fees, service and repair plans, extended warranties, GAP coverage, credit insurance, protection products and accessories bought with the car counts. Interest on items unrelated to the car, like a boat or trailer, doesn’t.
I rolled my old car loan into the new one. Does all the interest count?
No. Interest on negative equity, the amount you still owed on your trade-in, doesn’t qualify. The interest is split in proportion: if negative equity is 20% of the loan, 20% of the interest doesn’t count. If your figure comes from Form 1098-VLI, the lender should already have left that part out. Otherwise, the checker’s optional section does the split.
What if I refinance?
The interest generally still counts if the new loan is a first lien on the same car and isn’t larger than what you owed on the old loan. Any cash-out or extra amount doesn’t count.
I have two car loans. Do I get $10,000 for each?
No. The $10,000 limit is per tax return, not per car. Interest on both qualifying loans is added together and then capped.
About you and your return
Do I have to itemize?
No. You claim it on Schedule 1-A, and it works whether you itemize or take the standard deduction.
How do the income limits work?
Take the smaller of your qualifying interest or $10,000, then subtract $200 for every $1,000 (or part of $1,000) of modified AGI above $100,000, or $200,000 if married filing jointly. Example: $3,000 of interest and $110,000 of income gives $3,000 − $2,000 = $1,000. For most people, modified AGI is the same as AGI.
How does it work for married couples?
Filing jointly, you get one $10,000 limit, and the phase-out starts at $200,000. Filing separately, each return has its own $10,000 limit, and the phase-out starts at $100,000 on each.
I use the car for work. Can I still claim it?
Yes, if when you took out the loan you expected to use it more than half the time for personal driving. If you deduct some of the interest as a business expense (for example on Schedule C), that part can’t also count here.
Does it lower my Social Security or Medicare tax?
No. It reduces your federal income tax only. Whether your state allows it is up to each state, so check your state’s rules.
Where do I get the interest amount?
For 2026 and later, from Form 1098-VLI, which your lender sends early the next year. For 2025 there’s no form; use your lender’s online account or annual statement. More about Form 1098-VLI.
Which years does it cover?
Tax years 2025 through 2028. Unless Congress extends it, interest you pay in 2029 and later won’t qualify.
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