08/07/2026
The One Big Beautiful Bill Act created a new above-the-line deduction for qualified passenger vehicle loan interest for tax years 2025–2028. For 2026, eligible taxpayers may deduct up to $10,000 of qualifying interest, subject to MAGI-based phase-outs.
The deduction is claimed on Schedule 1-A, Part IV, and generally requires that:
1. The loan was incurred after December 31, 2024 and secured by the vehicle.
2. The vehicle is new, for personal use, has a GVWR under 14,000 pounds, and its final assembly occurred in the United States.
3. The vehicle’s VIN is reported with the deduction.
4. The lender provides documentation showing qualified interest paid and relevant vehicle details.
Important limitation: This is separate from Section 179 and 100% bonus depreciation. Those provisions apply to qualifying business-use property, while the Schedule 1-A car-loan interest deduction is for personal-use vehicles. Do not claim the same vehicle costs under both regimes without reviewing use, allocation, and eligibility rules.
Business owners should also coordinate the analysis with Section 179, bonus depreciation, and the choice between the standard mileage rate and actual-expense method. Under the actual-expense method, business-use costs may be allocated and substantiated; the standard mileage method has separate limitations.
Before filing, verify domestic final assembly, retain the VIN and purchase records, and obtain the lender’s annual interest statement.
For guidance tailored to your vehicle financing and business-use facts, contact Tax Expert Today.
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