01/04/2026
Did you buy and finance a New Car in 2025? Check out your Tax incentive. .
Personal Vehicle Interest Deduction (2025-2028)
A new provision in the "One Big Beautiful Bill Act," effective for tax years 2025 through 2028, allows eligible individuals to deduct up to $10,000 of interest paid on a qualifying car loan per year. This is an "above-the-line" deduction, meaning you can claim it even if you take the standard deduction.
Eligibility Requirements:
Vehicle Purchase Date: The vehicle must be new and purchased after December 31, 2024, and before January 1, 2029. Used vehicles do not qualify.
Final Assembly Location: The vehicle's final assembly must have occurred in the United States. You can check the final assembly location on the vehicle's window sticker or by using the NHTSA VIN Decoder.
Loan Requirements: The interest must be paid on a loan that is secured by a first lien on the vehicle. Interest on lease payments does not qualify.
Personal Use: The vehicle must be for personal use, not primarily for business or commercial purposes.
Income Limits: The deduction begins to phase out for taxpayers with a modified adjusted gross income (MAGI) over $100,000 for single filers and $200,000 for married couples filing jointly.
Reporting: You must include the vehicle's VIN on the new Schedule 1-A when filing your tax return (along with Form 1040). Your lender will provide a statement of interest paid, likely similar to a Form 1098, to help you with this process.
Business Vehicle Interest Deduction (General Rules)
For self-employed individuals or business owners, interest on a car loan has always been, and continues to be, deductible as a business expense, separate from the temporary personal use deduction.
Eligibility: You must be a business owner or self-employed individual using the vehicle for work purposes. Employees cannot claim this deduction.
Calculation: You can only deduct the portion of the interest that corresponds to the percentage of business use. For example, if you use your car 60% for business, you can deduct 60% of the interest paid.
Method: You can deduct the interest using the actual expense method (along with other costs like gas, insurance, and repairs) or you can opt for the standard mileage rate, which includes an allowance for interest as part of the rate.
Documentation: Detailed records, such as a mileage log and loan statements, are essential to prove business use in the event of an audit
