The Car-Loan Interest Deduction (2025–2028): Who Qualifies, the U.S.-Assembly Rule and What It's Worth
A new tax break lets many car buyers deduct loan interest through 2028, but only for new, U.S.-assembled vehicles and only below certain incomes. Here is the eligibility check and what it's really worth.
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📐 Figures verified Sep 28, 2026 against the IRS fact sheet on the new deductions (FS-2025-03), Public Law 119-21 and Regulation Z's disclosure rule. The deduction amounts come from our figures registry. This is general information, not tax advice. How we check numbers →
For tax years 2025 through 2028, you can deduct up to $10,000 a year of interest on a loan for a new car, SUV, pickup or motorcycle assembled in the U.S., bought for personal use with a loan taken out after 2024. You don't need to itemize. It phases out above $100,000 of income ($200,000 joint), and leases and used cars don't qualify.
Numbers That Matter
| Figure | Amount | Source | Verified |
|---|---|---|---|
| Maximum deduction | $10,000 of interest a year, tax years 2025–2028 | IRS FS-2025-03 | Sep 28, 2026 |
| Phase-out | Reduced by $200 for each $1,000 of modified AGI over $100,000 ($200,000 joint) | IRS FS-2025-03 | Sep 28, 2026 |
| Who can claim it | Itemizers and non-itemizers alike | IRS FS-2025-03 | Sep 28, 2026 |
| Which vehicles | New, final assembly in the U.S., personal use, bought with a loan originated after Dec. 31, 2024 | IRS FS-2025-03 | Sep 28, 2026 |
| The law | Public Law 119-21 (2025) | Congress / GovInfo | Sep 28, 2026 |
| Finding your interest | Your loan contract discloses the finance charge; lenders report interest paid | Regulation Z, 12 CFR 1026.18 | Sep 28, 2026 |
Do You Qualify? A Five-Question Check
- Is the vehicle new? The original use has to start with you. Used vehicles don't qualify.
- Was final assembly in the United States? Check the vehicle information label on the window sticker, or decode the VIN with the government's free VIN decoder; the plant location appears there.
- Is it a qualifying vehicle for personal use? Cars, minivans, vans, SUVs, pickups and motorcycles under 14,000 pounds count; business vehicles and leases don't.
- Was the loan taken out after December 31, 2024, and secured by the vehicle? Loans from before 2025 don't qualify.
- Is your income under the phase-out? Above $100,000 of modified AGI ($200,000 joint), the cap shrinks by $200 per $1,000, reaching zero at $150,000 ($250,000 joint).
How to Claim It
You'll need the vehicle identification number on your return, plus the interest you paid during the year, which lenders report. Because it's available whether or not you itemize, you can take the standard deduction and still claim it. Keep the purchase contract and the window sticker or VIN record showing U.S. assembly.
What It's Worth by Tax Bracket
The deduction lowers taxable income, so its value is the interest times your tax bracket. A $40,000 loan at 7% over 60 months charges about $2,581 of interest in the first year:
| Federal bracket | First-year tax savings |
|---|---|
| 10% | $258 |
| 12% | $310 |
| 22% | $568 |
| 24% | $619 |
| 32% | $826 |
Interest falls every year as you pay down the loan, so the savings shrink too, and the break ends after 2028.
Worked Example: Three Buyers and the Phase-Out
- Single, $90,000 MAGI: under the phase-out, so all $2,581 of first-year interest is deductible, worth about $568 in the 22% bracket.
- Single, $120,000 MAGI: the cap drops to $6,000, still above $2,581 of interest, so the whole amount counts.
- Married, $230,000 MAGI: the cap falls to $4,000, which limits the deduction on a bigger loan. At $150,000 single, it's fully phased out.
Loan terms and incomes are illustrative. State tax treatment varies; confirm details with a tax professional.
Decision Rules
If this, then that
- If you're shopping for a new car anyway → check where it was assembled before you choose between models.
- If the dealer offers 0% or very low financing → the deduction is worth little; take the better deal.
- If you're leasing or buying used → this deduction doesn't apply.
- If your income is near the phase-out → estimate your cap before counting on the savings.
- Never → buy a more expensive car or borrow more just to get a deduction worth a fraction of the interest.
Mistakes to avoid
- Assuming any car loan qualifies; the car must be new and U.S.-assembled.
- Forgetting to record the VIN.
- Claiming interest on a lease or a business vehicle.
- Thinking you have to itemize to claim it.
- Letting a tax break talk you into a bigger loan.
Related: upside down on your car loan covers negative equity; the credit score you need for every loan shows auto rates by tier; the car-buying guide covers budgets and financing; and 2025 tax changes lists the other new deductions.