Deductions · calculator
Deducting car loan interest on a new vehicle
Interest on a loan for a new, US-assembled personal vehicle, with a phase-out twice as steep as the tips rule.
Car loan interest deduction
Car loan interest deduction
$2,400
About $528 less federal income tax
- Interest counted (up to $10,000)$2,400
- Phase-out: $200 per $1,000 or part of it$0
- Marginal bracket22%
New vehicle bought after 2024 for personal use, final assembly in the United States, loan secured by the vehicle; the VIN goes on the return. Leases do not count.
The car loan interest deduction lets you subtract up to $10,000 a year of interest paid on a loan used to buy a new passenger vehicle for personal use, for tax years 2025 through 2028 (section 70203 of Public Law 119-21, Schedule 1-A Part IV). The loan must be originated after December 31, 2024 and secured by the vehicle, the vehicle must be new, weigh under 14,000 pounds and have its final assembly in the United States, and its VIN goes on the return. Leases and used cars do not qualify. The deduction falls by $200 for each $1,000 or part of $1,000 of modified AGI above $100,000, or $200,000 on a joint return, so even $10,000 of interest is gone $50,000 above the threshold. A single buyer with $104,500 of modified AGI and $2,400 of interest deducts $1,400. It is available with the standard deduction, but married couples must file jointly.
Checked by Radif Partners · Editorial policy · How we calculate
Every condition, from the loan to the vehicle
- Loan originated after December 31, 2024, used to buy the vehicle and secured by a lien on it.
- New vehicle: car, minivan, van, SUV, pickup truck or motorcycle, gross vehicle weight rating under 14,000 pounds.
- Final assembly in the United States, shown on the dealer label or by the VIN plant code.
- Personal use; interest already deducted on Schedule C, E or F does not count twice (Schedule 1-A line 22, column ii).
- VIN reported on the return for each year the deduction is claimed; up to two vehicles fit on the form.
A phase-out that moves fast
| Modified AGI (single) | Interest paid | Reduction | Deduction |
|---|---|---|---|
| $95,000 | $6,000 | $0 | $6,000 |
| $100,001 | $6,000 | $200 | $5,800 |
| $104,500 | $6,000 | $1,000 | $5,000 |
| $120,000 | $6,000 | $4,000 | $2,000 |
| $140,000 | $6,000 | $8,000 | $0 |
| $160,000 | $6,000 | $12,000 | $0 |
Two features make this phase-out harsher than the one for tips: each step costs $200 instead of $100, and partial steps count as full ones. A single filer with $6,000 of interest loses it all $30,000 above the threshold.
Business use and mixed use
A vehicle bought for a business or rented out does not qualify, because the deduction is for personal-use vehicles. A sole proprietor who drives the same car for clients and for the family deducts the business share of the interest on Schedule C and reports it in column ii of Schedule 1-A line 22; only the remaining personal share can be claimed on the new deduction, in column iii.
What it saves
As with every deduction, the saving is the deducted interest times your marginal rate. A typical new-car loan of $40,000 at a rate of 7% generates around $2,700 of interest in its first year; at 22% that is about $600 of federal income tax. The interest itself is on the statement the lender must now send you. Combined effects with the other new deductions are in the Schedule 1-A calculator.
Sources: IRS Schedule 1-A (Form 1040) 2025, Additional Deductions: tips, overtime, car loan interest, seniors; IRS: Working Families Tax Cuts, provisions for individuals and workers; IRS Fact Sheet FS-2025-03: deductions for working Americans and seniors, read on October 11, 2026.