How the new car loan interest deduction works
Until 2025, interest on a personal car loan was never deductible on a federal return — unlike mortgage interest, it was treated as personal interest. The One Big Beautiful Bill Act, signed in July 2025, changed that for a limited window. For tax years 2025 through 2028, you can deduct up to $10,000 per year of interest paid on a qualifying vehicle loan. The IRS issued final regulations on September 8, 2026, which this calculator follows.
Like the other new deductions, it's available whether or not you itemize. It's claimed on Schedule 1-A (Form 1040), Part IV, and your lender will send you a statement of interest paid (the IRS requires lenders to report interest of $600 or more).
What makes a vehicle "qualified"
- New. The original use of the vehicle must begin with you. Used vehicles, including certified pre-owned, don't qualify. Demonstrators with prior registered owners don't either.
- Assembled in the United States. Final assembly must have happened at a US plant. Brand doesn't matter — many Toyotas, Hondas, BMWs, Hyundais and Mercedes are built in the US, and some Fords, Chevys and Jeeps are built in Mexico or Canada. The window sticker's "Final Assembly Point" line and the VIN are how you tell.
- Personal use. Cars, minivans, vans, SUVs, pickups and motorcycles with a gross vehicle weight rating under 14,000 pounds. Business or fleet vehicles are excluded. RVs, campers, trailers and ATVs aren't "passenger vehicles" under the rule.
- Loan taken out after December 31, 2024, secured by a first lien on the vehicle, from an unrelated lender. Refinancing a qualifying loan keeps the deduction, up to the balance being refinanced.
- Not a lease. Lease payments contain no deductible interest under this rule.
The limits: $10,000 cap and the $100,000 phase-out
The cap is $10,000 of interest per year. In practice only expensive vehicles with long loans get near it — a $60,000 loan at 7% for 72 months pays about $4,000 of interest in its first year.
The income phase-out is steeper than the tips and overtime rules. Above $100,000 of modified adjusted gross income ($200,000 married filing jointly), you lose $200 for every $1,000 or fraction of $1,000 over the line — the IRS worksheet rounds the excess up. So a single filer at $100,500 loses $200; at $120,000 loses $4,000; and at $150,000 ($250,000 joint) the deduction is fully gone.
How much is it actually worth?
Because it's a deduction, the value depends on your bracket. A $3,000 deduction saves about $360 in the 12% bracket, $660 in the 22% bracket, and $720 in the 24% bracket. Interest is front-loaded on an amortizing loan, so the first full year is usually the biggest deduction, and it declines each year after. The calculator above computes the interest for the specific calendar year you select.
Worked examples
How to check final assembly
- Window sticker (Monroney label). Every new vehicle sold in the US lists "Final Assembly Point" with the city and country. If you don't have the sticker, dealers can reprint it and many manufacturers offer a lookup.
- VIN. The first character is the country of manufacture: 1, 4, 5 = United States; 2 = Canada; 3 = Mexico; J = Japan; K = Korea; W = Germany; S = United Kingdom; Y = Sweden/Finland; L = China. Use the checker above.
- NHTSA decoder. Enter your full VIN at the NHTSA decoder and look for "Plant City" and "Plant Country."
Frequently asked questions
Is car loan interest tax deductible in 2025?
Yes, for 2025–2028, up to $10,000 a year on a new, US-assembled, personal-use vehicle financed after December 31, 2024, subject to the income phase-out.
Do used cars qualify?
No. The vehicle must be new to you as the first owner.
Do electric vehicles qualify?
Yes, if they meet the same tests — new, US-assembled, personal use, financed after 2024. The deduction is separate from any EV credit.
What if my income is $100,001?
The excess is rounded up to a full $1,000, so you lose $200 of deduction.
Does a lease qualify?
No. Only interest on a loan qualifies.
Can I deduct interest on a refinanced loan?
Yes, if the original loan qualified, up to the amount refinanced. Cash-out amounts above the old balance don't qualify.
Does the deduction apply to motorcycles?
Yes. Motorcycles are included in the definition of passenger vehicle if they're new, US-assembled, and for personal use.
Do I need to itemize?
No. The deduction is claimed on Schedule 1-A and works with the standard deduction.