Bottom Line Up Front: For the first time in decades, you may be able to deduct interest on a personal vehicle loan this tax season. Part of the “One Big Beautiful Bill Act” (OBBBA), this new deduction allows you to write off up to $10,000 in interest if you purchased a new car in 2025.
Unlike many tax breaks, this is an “above-the-line” deduction. This means you can claim it even if you take the Standard Deduction.
The “OBBBA” Car Break Explained
Historically, car loan interest was only deductible for business vehicles on Schedule C. But for the 2026 tax season (filing 2025 returns), the rules have shifted.
If you bought a qualified vehicle after December 31, 2024, you can deduct the interest paid during 2025 on the new Schedule 1-A. This puts money directly back into your pocket by lowering your Adjusted Gross Income (AGI).
Eligibility Checklist (Strict Rules Apply)
The IRS is strictly enforcing the criteria to prevent abuse. To claim this, your vehicle and loan must match ALL of these points:
- New Vehicles Only: Used cars do not qualify. You must be the original owner.
- Date: Purchased between Jan 1, 2025, and Dec 31, 2025.
- Assembly: The vehicle must have been assembled in the USA. Check your driver’s side door jamb sticker or ensure your VIN starts with 1, 4, or 5.
- Income Limit: The deduction phases out if your Modified AGI exceeds $100,000 (Single) or $200,000 (Married Filing Jointly).
Gig Workers: The “Double Dip” Warning
If you drive for Uber, Lyft, or DoorDash, you have a critical choice to make. You cannot claim the same interest twice.
- Option A (Business): Deduct the business portion of interest on Schedule C (in addition to the Standard Mileage Rate).
- Option B (Personal): Claim the new OBBBA deduction on Schedule 1-A.
Strategy: If your business use is low (e.g., 20%), the new Personal Deduction (Option B) might actually be worth more. Do the math before filing. You cannot take both on the same vehicle.
2026 Car Loan Deduction Limits
See which category your vehicle falls into.
| Vehicle Type | Max Interest Deduction | Qualification | Form Required |
| New Personal Car (2025) | $10,000 | US Assembly / New | Schedule 1-A |
| Used Personal Car | $0 | Not Eligible | N/A |
| Business Vehicle | % of Business Use | Schedule C Rules | Schedule C |
What to Look For
Your lender should have sent you a Year-End Statement or a form similar to a 1098 Mortgage Interest statement.
If they didn’t, log into your loan portal and search for “Interest Paid YTD 2025.” You will need this exact number and your full VIN to file.
Disclaimer: This article covers OBBB tax provisions for the 2025 tax year filed in early 2026. Always verify details at IRS.gov .
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