For decades, the answer to "is car loan interest tax deductible" was a simple no for most drivers. That changed with a 2025 federal law that now lets millions of people write off part of their auto loan interest.
The rules are specific, and not every loan or vehicle qualifies. Here is what the deduction covers, who is eligible, and how to claim it without tripping up.
The short answer
For personal car loans, interest was not deductible for years. Under the One Big Beautiful Bill Act, taxpayers can now deduct up to $10,000 in interest on a qualifying new car loan for tax years 2025 through 2028.
This deduction is temporary and comes with strict rules on the vehicle, the loan, and your income. If your situation does not check every box, the old answer still applies and your interest is not deductible.
What the new auto loan interest deduction covers
The deduction lets eligible drivers subtract qualified auto loan interest from their taxable income, up to $10,000 per year. The cap is the same whether you file single or jointly.
One helpful detail is that you can claim it whether or not you itemize. That means you can take the standard deduction and still write off qualifying car loan interest.
Which vehicles and loans qualify
The requirements are narrow, so read them carefully before you count on the write-off:
- New vehicles only: Used car loans do not qualify.
- Final assembly in the United States: You can check a car's assembly location on the window sticker or by its VIN.
- Personal use: The car cannot be for business or commercial use to claim this particular deduction.
- Loan timing: The loan must have originated after December 31, 2024, and be secured by the vehicle.
- Vehicle type and weight: Cars, minivans, vans, SUVs, pickups, and motorcycles under 14,000 pounds gross vehicle weight can qualify.
Because the deduction only applies to qualifying new cars, it pays to confirm a model's assembly location before you finance it. If you are still shopping, comparing loan offers on a marketplace like myAutoloan can help you line up new car financing while you check which models were assembled in the U.S.
myAutoloan
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Income limits to watch
The deduction phases out for higher earners. It begins to shrink once your modified adjusted gross income passes $100,000 for single filers or $200,000 for married couples filing jointly.
Above those thresholds, the amount you can deduct drops gradually as income rises. High earners may find the benefit reduced or fully phased out.
What about business use and refinancing?
If you use your vehicle for business, a separate and long-standing rule may let you deduct the business portion of your car loan interest. That is claimed differently from the new personal deduction, and you generally cannot use both for the same interest.
Refinancing can complicate eligibility, since the new deduction is tied to the original loan securing a qualifying vehicle. If you are thinking about refinancing to lower your payment, a lender like iLending can walk you through the terms, but confirm any tax impact with a tax professional first.
iLending
iLending
iLending is an auto refinance service that pairs you with a dedicated loan consultant and shops your loan across a network of 60+ lenders. Clients save an average of $148 per month**, and you may be able to skip payments for 45-90 days while your new loan is set up*. iLending works with credit scores as low as 560 and delivers decisions in as little as 24 hours.
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Fees
Varies by lender
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Not available in HI, NH, RI; vehicles must be under 150,000 miles; consultation happens by phone
How to claim the deduction
Start by gathering your loan documents and the total interest you paid during the tax year. Your lender should report this, and you may receive a statement summarizing it.
Confirm your vehicle meets the assembly and weight rules, then check that your income falls within the limits. Because the rules are new and detailed, working with a tax preparer or trusted software can help you avoid errors.
The role of your credit
Qualifying for an affordable new car loan in the first place depends heavily on your credit. A stronger score means a lower APR, which lowers the interest you pay even if part of it is deductible.
Creditship is a tool that can help you track your credit and find steps that may raise your score before you apply. A better score can save you far more than the deduction returns.
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Your next steps
If you bought or plan to buy a qualifying new car, keep every loan and interest document in one place. Confirm the vehicle's assembly location, check the income limits, and track your interest paid across the year.
This article is general information, not personal tax advice. Tax rules can change and your situation is unique, so confirm the details with a qualified tax professional before you file.
Frequently Asked Questions
Is car loan interest tax deductible for a used car?
No. The current deduction applies only to qualifying new vehicles with final assembly in the United States. Interest on used car loans does not qualify for this personal deduction.
How much car loan interest can I deduct?
Eligible taxpayers can deduct up to $10,000 of qualified auto loan interest per year for tax years 2025 through 2028. The cap is the same for single and joint filers, and the amount phases out at higher incomes.
Do I have to itemize to deduct car loan interest?
No. This deduction can be claimed whether or not you itemize, so you can take the standard deduction and still write off qualifying interest. You still need to meet the vehicle, loan, and income requirements.
Is car loan interest deductible if I use the car for business?
A separate rule may let you deduct the business-use portion of your car loan interest, which is handled differently from the new personal deduction. You generally cannot claim both for the same interest, so check with a tax professional on the best approach.
