Car loan interest deduction.

How the deduction is calculated

Deduction = the smaller of your qualifying interest and $10,000, minus $200 × the number of $1,000 steps (rounded up) that your MAGI is above $100,000 ($200,000 joint), never below zero. Tax saved = deduction × your marginal rate.

Worked example

Single filer, MAGI $112,400, $6,200 of interest, 24% bracket. MAGI is $12,400 over $100,000, which is 13 steps (12.4 rounded up). 13 × $200 = $2,600. $6,200 − $2,600 = $3,600 deduction. $3,600 × 24% = $864 of estimated federal tax saved.

With no other interest, the deduction reaches zero at $150,000 of MAGI for a $10,000 loan-interest year (single) and $250,000 (joint).

Eligibility checklist

• New vehicle: the original use starts with you. Used vehicles do not qualify.
• Personal use, not business or commercial use. Leases do not qualify.
• Final assembly in the United States (see the vehicle label or the plant code in the VIN).
• A car, minivan, van, SUV, pickup truck or motorcycle with a gross vehicle weight rating under 14,000 lb.
• The loan was taken out after December 31, 2024 and is secured by a first lien on the vehicle. Refinanced loans can qualify up to the refinanced amount.
• The loan is not owed to a related party, and the vehicle does not have a salvage title.
• You report the vehicle's VIN on your return for each year you claim it.

FAQ

Do I have to itemize? No. The IRS says the deduction is available to both itemizing and non-itemizing taxpayers.

Which years does it cover? Tax years beginning after December 31, 2024 and before January 1, 2029, so 2025 through 2028.

Does this include state tax? No. This is a federal estimate only. State treatment varies.

What if I refinance? Interest on the refinanced loan is generally eligible, but only up to the amount of the loan that was refinanced.

Official sources: IRS Fact Sheet FS-2025-03 (July 14, 2025, updated July 25) and 26 U.S.C. 163(h)(4). Federal bracket percentages are from the IRS tax rates page. Rules verified September 30, 2026.