FAQ'S on Car Loan Interest

Under the One Big Beautiful Bill Act (OBBBA), a new tax deduction for car loan interest is available for the 2025 and 2026 tax years. Unlike many other deductions, this is an "above-the-line" deduction, meaning you can claim it even if you take the standard deduction and do not itemize.

Information Required for Filing

To claim the deduction on your tax return (typically reported on Schedule 1-A), you will need:

Vehicle Identification Number (VIN): This is mandatory; missing it will disqualify the deduction.

Total Interest Paid: The exact amount of interest paid during the calendar year (usually found on a statement from your lender).

Proof of Final Assembly: You must keep a record (original window sticker or VIN look-up) confirming the car was assembled in the U.S.

Loan Origination Date: Only loans originated after December 31, 2024, qualify.

Frequently Asked Questions

1. Who is eligible for the deduction?

You qualify if you are a U.S. taxpayer who purchased a new vehicle for personal use. You must be the primary borrower on a loan secured by the vehicle.

2. What types of vehicles qualify?

To be a "qualified passenger vehicle," it must meet these criteria:

• New Condition: Used or "certified pre-owned" vehicles do not qualify.

• Made in America: Final assembly must have occurred in the United States.

Tip: Check your VIN—if it starts with 1, 4, or 5, it was likely assembled in the U.S.

• Weight Limit: A Gross Vehicle Weight Rating (GVWR) of less than 14,000 pounds.

• Eligible Types: Cars, SUVs, minivans, pickup trucks, and motorcycles. (RVs and campers are generally excluded).

3. How much can I deduct?

The standard deduction is capped at $10,000 in interest paid per year. If you are 65 or older, you may be eligible for an additional $6,000 deduction under separate provisions of the Act (subject to lower income phase-outs).

4. Are there income limits?

Yes. The deduction phases out based on your Modified Adjusted Gross Income (MAGI):