The no tax on car loan interest deduction
Updated October 2026
Section 163(h)(4) treats interest on a “qualified passenger vehicle loan” as deductible for tax years 2025 through 2028. Every condition has to hold:
The vehicle is a car, minivan, van, SUV, pickup truck or motorcycle with a gross vehicle weight rating under 14,000 pounds, new (its original use starts with you), and with final assembly in the United States. The loan was taken out after December 31, 2024, to buy that vehicle for personal use, and is secured by a first lien on it. Leases, fleet purchases, commercial vehicles not used personally, and salvage or scrap vehicles are excluded. A refinance of a qualifying loan generally still qualifies. The return lists the vehicle identification number for each year you claim it.
Deduction = the smaller of interest paid or $10,000, minus $200 for each $1,000 or part of $1,000 of modified AGI over $100,000 ($200,000 joint). The “or part” wording means a single dollar over a $1,000 step costs the full $200.
Calculator default. A single filer with $80,000 of income paid $1,800 of interest: no phase-out, deduction $1,800, and at the 22% bracket it saves $396. Near the line. At $104,001 the excess is $4,001, which counts as five steps: $1,000 off. At $105,000 the excess is exactly five steps, also $1,000 off. With $3,000 of interest, the deduction is $2,000 either way, and it reaches zero at $115,000.
Lenders must send a year-end statement showing the interest you paid on a qualifying loan; your loan app or the December statement also shows it. Principal, insurance and fees do not count. The VIN is on the title, registration, insurance card and dashboard; its 11th character is the assembly plant code, and NHTSA’s free VIN decoder shows the plant country. The window sticker’s “final assembly point” line says the same thing for new vehicles. Use expected AGI from Form 1040 line 11 for the income field.
New-car loans at commercial banks averaged 7.54% for 60 months in August 2026 (Federal Reserve G.19, released October 7, 2026). First-year interest on a new loan taken out in January:
| New car loan | Payment (60 mo, 7.54%) | Year-one interest | Modified AGI | Deduction | 2026 federal tax saved |
|---|---|---|---|---|---|
| $30,000 | $601.71 | $2,087 | $80,000 | $2,087 | $459 |
| $45,000 | $902.56 | $3,131 | $95,000 | $3,131 | $689 |
| $60,000 | $1,203.42 | $4,174 | $104,500 | $3,174 | $698 |
| $45,000 | $902.56 | $3,131 | $150,000 joint | $3,131 | $689 |
| $80,000 | $1,604.56 | $5,565 | $210,000 joint | $3,565 | $784 |
Interest is highest in the first year and falls as the balance shrinks, so the deduction declines each year of the loan. The third buyer’s $4,174 of interest is cut by $1,000 because income is $4,500 over the line.
| Modified AGI | Single deduction | Joint deduction |
|---|---|---|
| $90,000 | $3,000 | $3,000 |
| $100,000 | $3,000 | $3,000 |
| $105,000 | $2,000 | $3,000 |
| $110,000 | $1,000 | $3,000 |
| $115,000 | $0 | $3,000 |
| $200,000 | $0 | $3,000 |
| $210,000 | $0 | $1,000 |
Judging by the brand. Some foreign-brand models are assembled in the U.S. and some U.S.-brand models are not; check the VIN or sticker for the specific vehicle. Unsecured loans. A personal loan or credit card used to buy a car is not secured by a lien on it and does not qualify. 2024 purchases. Loans originated before 2025 are excluded even if interest is paid in 2026. Used and leased vehicles. Neither qualifies. Forgetting the VIN. The deduction is not allowed without it. Business use. Interest on a vehicle used in a business goes on the business schedule, not here.
It does not check the vehicle or loan for you (the eligibility question is your answer), split interest when a loan also financed other items, or handle a vehicle used partly for business. Tax saved uses 2026 brackets with the standard deduction. If you refinanced, rolled negative equity into the loan, or bought the vehicle for a business, ask a tax professional how much of the interest counts.