Bought a New Car? You May Deduct Up to $10,000 of Your Car Loan Interest

Oct 28

2 min read

For the first time in decades, the interest on a personal car loan can be tax deductible. If you bought a new car in 2025 or 2026, you could deduct up to $10,000 a year in loan interest. But the rules are strict, and plenty of buyers will find out their car doesn't qualify.

The 5 rules your car must meet

1. It's new. The original use must start with you. Used cars don't qualify, even if they're one year old.

2. Final assembly happened in the USA. The brand doesn't matter. Where the car was put together does.

3. It's for personal use. Business vehicles are handled under different rules.

4. It's a passenger vehicle under 14,000 lbs: cars, SUVs, minivans, pickups and motorcycles.

5. The loan started after December 31, 2024 and is secured by the vehicle.

Leases do not qualify. Only purchases with a loan.

How to check if your car was assembled in the US

• Look at the window sticker (Monroney label). It lists the "final assembly point."

• Enter your VIN in the free NHTSA VIN decoder at nhtsa.gov.

• Ask your dealer for the assembly plant location.

You'll need your VIN on your tax return, so keep it handy.

The income limit

The deduction phases out once your modified adjusted gross income passes $100,000 (single) or $200,000 (married filing jointly). It shrinks by $200 for every $1,000 over the limit.

What it's worth

A $40,000 car loan at 7% costs about $2,600 in interest the first year. If you're in the 22% tax bracket, deducting that interest saves you nearly $600 in federal tax. Over a 5-year loan, the savings add up.

You don't have to itemize to claim it. It goes on the new Schedule 1-A, on top of your standard deduction.

Your checklist before tax time

• Your purchase contract and loan agreement

• Your VIN

• Your lender's year-end statement showing interest paid in 2026

Not sure if your car qualifies?

Bring your paperwork to JVM Accounting and we'll check it for you. Book your 2026 tax appointment at jvmaccounting.com or call (904) 889-2326. Se habla español.