The car loan interest deduction (2025 to 2028): who qualifies and what it's worth

For tax years 2025 through 2028, you can deduct up to $10,000 a year of interest on a loan for a new car, even if you don't itemize. It sounds like a reason to buy now. In practice it saves a few hundred dollars on a typical loan: it covers only the interest, it saves only your tax rate on that interest, and it stops after 2028 while most loans run longer.

1. Who qualifies

• A new car whose first use starts with you. Used cars don't qualify.
• Final assembly in the US. The window sticker lists the final assembly point. A vehicle identification number (VIN) starting with 1, 4 or 5 usually means a US-built car, but the sticker is the better check.
• A car, SUV, van, pickup or motorcycle under 14,000 pounds, for personal use.
• A loan taken out after 2024 to buy it, secured by the car. Leases don't qualify. A refinance of a qualifying loan generally still counts, up to the original balance.
• Your VIN on the return. You report it with the deduction on Schedule 1-A. You don't need to itemize.

2. The cap and the income limit

The deduction is capped at $10,000 of interest a year. That cap falls by $200 for every $1,000, or part of $1,000, of modified adjusted gross income over $100,000 ($200,000 for married couples filing jointly):

Few car loans charge $10,000 of interest a year, so the cap rarely matters until it's nearly phased out.

3. What it's worth on a real loan

A $35,000 car with a $9,000 trade-in and $5,000 down leaves $23,310 to finance after 6% sales tax and fees. At 6.5% over 60 months, the payment is $456 and the loan charges $4,055 of interest in total. Signed in October 2026, in the 22% bracket:

That's about 15% of the interest, and a bit over 2% of the car's price. Signed in January 2026 instead, the same loan would save $736. A larger loan, $41,210 over 72 months at 7.5% on a $50,000 car, would save $1,616 of its $10,092 interest. In the 12% bracket, every saving above is about half as large.

4. What it shouldn't change

• Don't borrow to get it. Paying cash saves all the interest; the deduction gives back only your tax rate on it.
• Don't pick a car for it. A US-assembled car that costs $1,000 more has already used up a typical saving.
• Don't stretch the loan for it. A longer loan means more interest, most of it after 2028. See 60, 72 or 84 months.
• Prepaying is still fine. Paying a loan off early loses the deduction on interest you no longer owe, which is always a good trade.

5. What this leaves out

Some states follow the federal deduction and some don't. The deduction comes off income, not tax, so it doesn't help if you owe no income tax. Rules on the VIN, lender reporting and refinances come from IRS guidance that may still change before 2028; check the current instructions for Schedule 1-A.

Try it with your numbers

The Buy, Lease or Keep Calculator opens with this loan and the deduction turned on. Enter your car's price, loan, the month you'd sign, your filing status, income and tax bracket. It shows the interest each year, how much is deductible, and the tax it saves, inside the full cost of buying against leasing or keeping your car. Our guide to buy, lease or keep covers the rest of the decision. It runs in your browser and we don't store your numbers.

More guides for this tool

• Buy, lease or keep your car: the true cost per mile of each
• How long should you finance a car? 60, 72 or 84 months
• Reading a car lease: the money factor, residual and fees
• When to stop repairing an old car and replace it

Run your own numbers Car: Buy, Lease or Keep Keep, buy or lease: the true cost per mile of each, over the same years. Open the tool →