Car Loan Interest Is Now Tax Deductible

Bought a car this year? The interest may now be deductible. The One Big Beautiful Bill Act created a brand-new deduction for auto loan interest. Up to $10,000 a year for qualifying new vehicles, through 2028. Here’s who qualifies.

Buried in the One Big Beautiful Bill Act is a break most car buyers have never had: a deduction for interest paid on auto loans. For 2025 through 2028, you can deduct up to $10,000 a year in interest on a loan for a qualifying new vehicle — claimed on the new Schedule 1-A, the same form as the tips, overtime, and senior deductions.

The qualifying rules

• New vehicles only. Used cars don’t count.
• Must be a passenger vehicle with final assembly in the United States.
• Personal use qualifies — it doesn’t have to be a business car.
• Phaseout: modified adjusted gross income over $100,000 ($200,000 for married filing jointly).

The fine print

Like the other OBBBA deductions, this one is temporary — 2025 through 2028 — and it lives on Schedule 1-A, which makes it easy to miss if your preparer or software isn’t looking for it. And it’s a deduction, not a credit: at a 22% marginal rate, a $10,000 interest deduction saves roughly $2,200 in tax. Still real money — just not $10,000 off your bill.

How to claim it

• Keep your loan statements. You need the interest figure — your lender’s year-end statement is the source of truth.
• Prove U.S. assembly. Keep the purchase paperwork showing final assembly in the United States; the VIN plate and window sticker typically show this.
• Look for Schedule 1-A. Like the tips, overtime, and senior deductions, this one lives on the new form — ask your preparer about it by name.
• Stack it. These OBBBA deductions aren’t either/or. A tipped worker who bought a qualifying car can claim both.

One common question: what if the car is also used for business? Business-use interest was already deductible on Schedule C — this new deduction is the first break for the personal-use portion. If your car is mixed-use, keep the two buckets clean and talk to your preparer about the split.

Timing matters, too. The deduction runs 2025–2028 — the loan doesn’t have to be paid off by then, but the deduction window closes. And if your income sits near the $100,000/$200,000 phaseout, a bonus-heavy year could cost you the deduction for that year. As with all four OBBBA deductions, confirm the current IRS guidance before filing — the rules are still being finalized.

Alex Volkov, CPA is a New York-licensed CPA with over two decades in accounting, focused on resolving IRS tax problems — back taxes, liens, levies, garnishments, and audits — for individuals and businesses in all 50 states and around the world.