Is Car Loan Interest Tax Deductible in 2026? The OBBBA Auto Loan Interest Deduction Explained
The OBBBA lets you deduct up to $10,000 a year in interest on a new car loan — but only for U.S.-assembled personal vehicles financed after 2024, and it phases out above $100,000 of income. Here’s exactly who qualifies.
Interest on a new-car loan is deductible on your federal return — up to $10,000 a year — under the One Big Beautiful Bill Act's new car loan interest deduction. It only applies to personal-use vehicles with final assembly in the United States, financed with a loan that originated in 2025 or later, and it phases out above $100,000 of income ($200,000 married). The deduction runs through 2028.
Key facts
- Up to $10,000 per year in qualified vehicle loan interest, above-the-line (no itemizing required)
- Only new (not used) personal vehicles, GVWR under 14,000 lbs, with final assembly in the U.S.
- Loan must have originated after December 31, 2024; leases don’t qualify
- Phases out $200 per $1,000 of MAGI above $100,000 single / $200,000 joint; gone at $150,000 / $250,000
- Available 2025 through 2028; claimed on Schedule 1-A, and you must report the vehicle’s VIN
Which vehicles qualify
The vehicle must be new, purchased (not leased) for personal use, and have a gross vehicle weight rating under 14,000 pounds — covering most cars, SUVs, pickup trucks, vans, and motorcycles. Business and fleet vehicles don’t qualify. The loan must be secured by the vehicle and must have originated after December 31, 2024, per the IRS.
The "final assembly in the U.S." requirement
This is where people get tripped up. Vehicle brand or where a company is headquartered doesn’t determine eligibility — final assembly location does. Some vehicles from foreign-headquartered automakers are assembled in U.S. plants and qualify; some vehicles from American brands are assembled in Mexico or Canada and don’t. Check the vehicle’s window sticker, its VIN, or the National Highway Traffic Safety Administration’s VIN decoder before you count on the deduction.
How much you can deduct
Up to $10,000 of interest paid in a year — whichever is less between your actual interest and the cap. It’s above-the-line, so you get the full benefit whether you itemize or take the standard deduction, but you must include the vehicle’s VIN on your return each year you claim it, using the new Schedule 1-A.
The income phase-out
- Full deduction (up to $10,000): MAGI at or below $100,000 single / $200,000 joint
- Partial deduction: MAGI between $100,000–$150,000 single, or $200,000–$250,000 joint
- Fully phased out: MAGI at or above $150,000 single / $250,000 joint
A worked example
A single filer with $115,000 of MAGI pays $8,000 in car loan interest in the first year of a new loan. Their MAGI is $15,000 over the $100,000 threshold. At $200 per $1,000, that’s a $3,000 reduction, bringing their allowed cap down to $7,000. Since their actual interest ($8,000) exceeds that reduced cap, their deduction is limited to $7,000 — not the full $10,000, and not the full $8,000 they paid.
What doesn’t qualify
Leased vehicles, used vehicles, business or commercial vehicles, and loans that originated before 2025 are all excluded. Refinancing gets complicated too — interest tied to a cash-out refinance or rolled-in negative equity from a trade-in generally isn’t treated as qualified vehicle loan interest, so you may need to allocate the interest if you refinanced.
Claimed alongside the other new OBBBA deductions
The car loan interest deduction is one of four new above-the-line deductions the OBBBA added to Schedule 1-A, alongside no tax on tips, no tax on overtime, and the new senior deduction. All four flow to Form 1040, line 13b, and you can claim any combination you qualify for in the same year.
Frequently asked questions
Does leasing a car qualify?
No. Only loans used to purchase a vehicle qualify; lease payments are excluded entirely.
What if I refinance my car loan?
Only interest tied to the original qualified acquisition debt counts. Cash-out refinancing or rolled-in negative equity from a trade-in can reduce or disqualify part of the interest — keep your original loan documents.
Do electric vehicles qualify?
Yes, as long as they meet the same requirements — new, personal use, U.S. final assembly, and GVWR under 14,000 pounds. This deduction is separate from any electric-vehicle purchase tax credit, which has its own eligibility rules.
Can I claim this if I take the standard deduction?
Yes. It’s an above-the-line deduction claimed on Schedule 1-A, available regardless of whether you itemize.
Is this deduction permanent?
No. It applies to tax years 2025 through 2028 and is scheduled to expire after that unless Congress extends it — the same sunset as the tips, overtime, and senior deductions.
This article is for general educational purposes and reflects federal guidance available as of August 2026. It is not tax advice. Consult a qualified tax professional about your specific loan and vehicle.