Federal income tax

Is car loan interest tax deductible in 2025 and 2026?

Direct answer: Yes, for tax years 2025–2028, if the interest is qualified passenger vehicle loan interest—up to $10,000 a year on Schedule 1-A, with a MAGI phase-out, whether you take the standard deduction or itemize.

Yes, for tax years 2025, 2026, 2027, and 2028, if the interest is qualified passenger vehicle loan interest. The deduction is capped at $10,000 a year and phases out as Schedule 1-A MAGI rises. You claim it whether you take the standard deduction or itemize. Interest on a personal car loan outside those rules is still not deductible.

The old rule, and the exception

Section 163(h) disallows a deduction for personal interest. A loan used to buy a car for personal use fell under that rule for years. Section 70203 of the One, Big, Beautiful Bill Act, Public Law 119-21, added section 163(h)(4). For tax years beginning after December 31, 2024, and before January 1, 2029, qualified passenger vehicle loan interest is not treated as personal interest, so section 163(a) allows the deduction. The same act amended section 63(b) so people who do not itemize can claim it too. It also added section 6050AA, which is why lenders report the interest.

The IRS describes the same benefit as “no tax on car loan interest.” Lenders and dealers often say “vehicle loan interest deduction” or “auto loan interest deduction.” On the tax form, the heading is Schedule 1-A, Part IV, No Tax on Car Loan Interest. The legal name of the amount is qualified passenger vehicle loan interest.

Interest that can qualify

• The loan was originated after December 31, 2024, by you, or you became the obligor because an original obligor died.
• The money bought an applicable passenger vehicle for personal use. When you took out the loan, you expected personal use for more than half the time you would own it. The 2025 instructions treat use while you are performing services as an employee as personal use for this test.
• The loan is secured by a first lien on that vehicle. A later involuntary lien, such as a tax lien, does not spoil a first voluntary lien. A credit card usually is not a first lien on the car.
• The vehicle was new to you. Original use starts with the first person who takes delivery after the vehicle is sold, registered, or titled. A dealer holding it for sale does not start original use. A buyer who returns the vehicle within 30 days is not treated as the first user.
• It is a car, minivan, van, SUV, pickup, or motorcycle, built mainly for public roads, with at least two wheels, treated as a motor vehicle under title II of the Clean Air Act, with a gross vehicle weight rating under 14,000 pounds.
• Final assembly occurred in the United States. You can rely on the dealer label or on the plant of manufacture in the VIN.

Customary amounts financed with the purchase can be included: service plans, protection products, warranties, GAP waiver, credit insurance, sales tax, title and registration fees, and accessories that are part of the vehicle. The final regulations and the Form 1098-VLI instructions say negative equity, ordinary collision and liability insurance, a trailer, a boat, and cash you receive from the lender are not part of the qualified loan. Interest is split pro rata between the qualified and nonqualified principal.

Interest that does not qualify

• Any loan originated on or before December 31, 2024, including interest you pay on that old loan during 2025 or 2026.
• A used vehicle.
• A lease. The final regulations exclude lease financing even if the lease might be a sale for other federal tax purposes. The regulations give that example expressly.
• A loan to a related person under section 267(b) or 707(b)(1).
• Fleet sales, a commercial vehicle that is not used for personal purposes, a salvage-title vehicle, and a vehicle bought for scrap or parts.
• Final assembly outside the United States.
• Tax years before 2025 and after 2028.

A refinance of a loan that did qualify can still produce qualified interest, but only up to the outstanding qualified balance on the refinance date, including the treatment of accrued unpaid interest described in the final regulations, and only if the new loan keeps a first lien on that vehicle. Adding a new borrower does not give the new borrower the deduction. The original obligor can still have it. Cash added in the refinance does not qualify.

How you claim it, in 2025 and in 2026

Both years use Schedule 1-A. The 2025 form is final: Part IV is lines 22–30, and the schedule total on line 38 goes to Form 1040 line 13b. The 2026 draft, created June 16, 2026, and marked “do not file,” moves Part IV to lines 28–36 and the total to line 44, which the draft sends to Form 1040 line 13a. The cap and the phase-out text match. Read the line guide before you copy a number onto a draft form. Year-specific notes are on the 2025 and 2026 pages.

The deduction reduces taxable income. It does not reduce AGI, so it does not, by itself, change AGI-based credits. The phase-out uses MAGI from Schedule 1-A line 3, which is computed before this deduction. If part of the interest is a business deduction on Schedule C, E, or F, that part is column (ii) and is not deducted again on Schedule 1-A.

State income tax is a separate question. This site estimates the federal deduction only. Some states do not conform to Public Law 119-21 on the same timetable.

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