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The New Car Loan Interest Deduction: Which Vehicles Qualify and How to Claim It

The windshield and wipers of an orange car, with a sticky note reading “Check the VIN”.
Photo by Max Tokarev on Unsplash

For almost forty years, interest on a personal car loan wasn't deductible. Now, for tax years 2025 through 2028, it can be, even if you take the standard deduction. Everything hangs on one word: qualified. The vehicle, the loan and your income all have to pass, and a U.S. brand on the grille proves nothing. Plenty of people filed for 2025 without it, and some never learned their vehicle qualified.

See how to check where it was built

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By Ray Castellano · Updated Sep 29, 2026 · Reviewed against IRS, Treasury final regulations (Federal Register), 26 U.S.C. 163(h)(4) and 6050AA, NHTSA

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Be realistic about the size of it. The $10,000 in the law is a ceiling on the interest you can deduct, not the tax you save, and few borrowers pay anywhere near that much interest in a year. On a typical loan, the deduction is worth a few hundred dollars a year.

The rules are narrower than the headlines, too. Used cars don't count, even if they're new to you, and leases are excluded outright. The return asks for the vehicle identification number. And the income limit bites sooner than most summaries suggest, because the reduction comes off the interest you actually paid.

See the mistakes that cost the deduction

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What the loan itself has to show

Where the car was built gets most of the attention. The loan has its own tests, and they're easy to check against the contract in your files.

  1. The date you signed. The loan has to be taken out after December 31, 2024. The same new vehicle financed in December 2024 doesn't count.
  2. What kind of loan it is. It has to be a loan to buy the vehicle, secured by a first lien on it. A personal loan, a home equity loan or a loan from a relative won't count under this provision.
  3. Anything rolled in from a trade. If you still owed money on the old car, the interest on that share of the loan isn't deductible. A service contract, GAP coverage, sales tax and title fees get kinder treatment and count as part of the purchase.
  4. A refinance since then. A qualifying loan you later refinance generally still counts, up to the balance that was refinanced.
  5. How the car is used. It has to be bought for personal use, not business. The final rules test that once, when you take out the loan.

If the loan passes, the vehicle is next. The article shows how to confirm where a specific car was built, and how the deduction goes on the return.

See the 5 steps to claim it

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