You can deduct up to $10,000 a year of interest on a loan for a qualifying new vehicle, from 2025 through 2028. The rules are strict about the vehicle, the loan and how you use it. Final regulations released in September 2026 filled in the details, and they apply in full from tax year 2026.
The checklist
- It's a new vehicle and you're its first user. The loan documents must show it as new. Used cars don't qualify. A dealer demonstrator can qualify; a dealer's service loaner generally can't.
- It's the right kind of vehicle. A car, minivan, van, SUV, pickup truck or motorcycle with a gross vehicle weight rating under 14,000 pounds. RVs, trailers and ATVs don't qualify.
- Final assembly happened in the United States. Where the parts or the brand come from doesn't matter.
- The loan started after December 31, 2024 and is secured by a first lien on the vehicle.
- It's mainly for personal use. The final rules define this as expecting personal use more than 50% of the time you'll own it. Use by your spouse and certain relatives counts as personal.
- You put the VIN on your return. No VIN, no deduction.
How to check final assembly
- Window sticker: the Monroney label on a new car has a “Final assembly point” line with the city and state or country.
- VIN decoder: enter your VIN in the free NHTSA VIN Decoder and look at the plant city and plant country.
- Don't rely on the first digit alone. A VIN starting with 1, 4 or 5 tells you the manufacturer's code, not necessarily where final assembly took place. Some U.S.-brand models are built abroad and some foreign brands build in the U.S.
What parts of the loan count
| Item financed | Interest deductible? |
|---|---|
| Vehicle price | Yes |
| Sales tax, title and registration fees | Yes |
| Service contracts, GAP coverage and similar add-ons customarily financed with the car | Yes, if directly related to the purchase |
| Negative equity rolled in from a trade-in | No |
| Unrelated items or cash-out | No |
If the loan mixes qualifying and non-qualifying amounts, interest is split pro rata, and your down payment is applied to the non-qualifying part first.
Refinancing, leases and co-borrowers
- Refinancing: interest still qualifies, but only up to the balance that remained on the original qualifying loan, and the new loan must still be secured by a first lien on the same vehicle.
- Leases: lease payments don't qualify. Buying the car at the end of a lease doesn't either, because your original use began as a lessee.
- Adding a borrower later: the original borrower keeps the deduction; the new borrower doesn't get one.
Where you'll find your interest
Lenders that receive $600 or more of interest on a qualifying loan in a year must send you Form 1098-VLI. If your interest is lower, use your loan statements. Lenders report the interest, but deciding whether the vehicle qualifies is your job.
Income limits
The $10,000 cap drops by $200 for each $1,000, or part of $1,000, that your modified AGI is over $100,000 ($200,000 for joint filers). It's gone at $150,000 single and $250,000 joint. Try your numbers in the car loan interest calculator, which can also estimate a year's interest from your loan terms.
Common questions
Does a used car qualify?
No. The vehicle must be new and its original use must begin with you.
Does a Tesla, Ford or Toyota qualify?
It depends on the specific vehicle's final assembly point, not the brand. Check the window sticker or decode the VIN.
Can I deduct interest on a leased car?
No. Lease payments don't qualify, and financing the purchase of a car you leased doesn't qualify either.
What form shows my car loan interest?
Form 1098-VLI, which lenders must send when they receive $600 or more of qualifying interest in the year.
Does refinancing keep the deduction?
Yes, up to the balance left on the original qualifying loan, as long as the new loan is secured by the same vehicle.
Sources
- IRS FS-2025-03: Tax deductions for working Americans and seniors
- IRS: Schedule 1-A and instructions
- ThinkAdvisor: IRS finalizes car loan deduction details (Sept. 23, 2026)
- NHTSA VIN Decoder
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