The IRS and the U.S. Treasury announced a new tax deduction that lets some buyers deduct thousands of dollars per year in car loan interest.
This deduction comes from the “No Tax on Car Loan Interest” provision in President Donald Trump’s One Big Beautiful Bill Act (OBBBA). However, it only applies to certain vehicle loans taken out after Dec. 31, 2024. Find out who qualifies and how to claim the deduction below.
Also here’s how to save more with deductions most people miss.
Who Can Qualify
The good news is that this tax break isn’t only for people who itemize. It’s also possible to qualify with the standard deduction. The deduction only applies to loans taken out during the four-year period from Jan. 1, 2025, through Dec. 31, 2028, per the IRS.
According to the IRS, you may be able to deduct car loan interest if:
- The vehicle is new and for personal use.
- Final assembly happened in the U.S.
- The vehicle weighs under 14,000 pounds.
- A loan was made to purchase the vehicle.
- The loan interest is properly reported by the lender.
Eligible vehicles include cars, SUVs, pickup trucks, vans and motorcycles.
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How Much You Could Save
You can deduct up to $10,000 a year in qualifying car loan interest. However, that doesn’t mean you automatically save $10,000, dollar for dollar. Instead, that amount gets removed from your taxable income, which can lower what you owe, according to the IRS.
How To Know If Your Vehicle Was Assembled in the U.S.
The IRS recommended looking at the vehicle’s window sticker or using the National Highway Traffic Safety Administration VIN Decoder to verify whether your vehicle was assembled in the U.S.
You can find your vehicle’s VIN in one of the following places, per AutoTrader:
- Driver’s side door jamb
- Driver’s side dashboard
- Vehicle registration card
- Insurance card
How To Claim the Tax Deduction
To claim the deduction, fill out Part IV “No Tax on Car Loan Interest” on Schedule 1-A (Form 1040).
You’ll need to report your VIN. You’ll also need to know the total interest paid on your car loan.
For interest amounts above $600, lenders are required by the IRS to provide you with a written statement detailing the total amount of interest by Jan. 31 of each year. According to the IRS, the statement may be provided through an online account portal that car owners can easily access, a regular monthly or annual statement or other means designed to provide accurate information.
Lease payments do not qualify. Additionally, the deduction phases out for individuals with a modified adjusted gross income exceeding $100,000 or for joint filers with a MAGI over $200,000, per the IRS.
Editor’s note on political coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.
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This article originally appeared on GOBankingRates.com: IRS: Here’s How You Can Save Up To $10K on Your 2026 Taxes
