Car Loan Interest Deduction 2026: Up to $10,000, Who Qualifies and a Phase-Out Table

The Internal Revenue Service (IRS) says individuals may deduct interest on a loan for a qualified vehicle for 2025 through 2028, up to $10,000 a year, and the deduction shrinks above $100,000 of modified adjusted gross income (MAGI), or $200,000 for joint filers. The rule is in IRS fact sheet FS-2025-03 and, for the phase-out rate, in the final regulations published in Internal Revenue Bulletin 2026-39 on Sept. 21, 2026. Below is a table we computed from that rule, a buyer’s checklist and a printable to keep with your loan papers.

Who qualifies for the car loan interest deduction?

The fact sheet limits the deduction to a loan that meets four conditions. It must be “originated after December 31, 2024,” “used to purchase a vehicle, the original use of which starts with the taxpayer (used vehicles do not qualify),” “for a personal use vehicle (not for business or commercial use)” and “secured by a lien on the vehicle.” The IRS also says lease payments do not qualify.

Requirement	What the IRS says
Tax years	2025 through 2028 (Public Law 119-21, Sec. 70203: taxable years beginning after Dec. 31, 2024 and before Jan. 1, 2029)
Maximum deduction	$10,000 a year
Loan	Originated after Dec. 31, 2024 and secured by a lien on the vehicle
Vehicle use	Personal, not business or commercial
New or used	The taxpayer must be the first user; used vehicles do not qualify
Leases	Lease payments do not qualify
Refinanced loan	Interest on the refinanced amount is generally eligible

Which vehicles count?

The IRS defines a qualified vehicle as a car, minivan, van, sport utility vehicle (SUV), pick-up truck or motorcycle “with a gross vehicle weight rating of less than 14,000 pounds, and that has undergone final assembly in the United States.”

To check where a vehicle was assembled, the fact sheet points to the vehicle information label attached to each vehicle on a dealer’s premises. A taxpayer may instead rely on the plant of manufacture reported in the vehicle identification number (VIN). The IRS says the VIN Decoder website of the National Highway Traffic Safety Administration (NHTSA) provides plant of manufacture information.

How does the income phase-out work?

The fact sheet says the deduction phases out for taxpayers with MAGI over $100,000 ($200,000 for joint filers). Internal Revenue Bulletin 2026-39 sets the rate: the deduction is “reduced (but not below zero) by $200 for each $1,000 (or portion thereof)” by which MAGI exceeds $100,000, or $200,000 for a married couple filing jointly.

That gives a formula: allowed deduction = the smaller of your interest and $10,000, minus $200 for every $1,000 (rounded up) of MAGI over the line, never below zero. The table below applies it to three interest amounts. These are our computations from the IRS rule, not figures the IRS published.

Interest paid	MAGI $100,000 (joint $200,000)	MAGI $110,000 (joint $210,000)	MAGI $125,000 (joint $225,000)	MAGI $150,000 (joint $250,000)
$2,000	$2,000	$0	$0	$0
$5,000	$5,000	$3,000	$0	$0
$10,000	$10,000	$8,000	$5,000	$0

For example, a single filer with $10,000 of interest and a MAGI of $110,000 is $10,000 over the line, so the reduction is 10 x $200 = $2,000 and the deduction is $8,000. At $125,000 the excess is $25,000 and the reduction $5,000. At $150,000 the reduction is $10,000, which wipes out the deduction: $10,000 of interest is fully phased out at $150,000 for a single filer and $250,000 for joint filers.

The “or portion thereof” wording matters between the round numbers:

Single filer, $10,000 of interest	Excess over $100,000	Steps of $1,000	Reduction	Allowed deduction
MAGI $100,500	$500	1	$200	$9,800
MAGI $105,000	$5,000	5	$1,000	$9,000

A MAGI of $100,500 is only $500 over, yet the rule counts a portion of $1,000 as a full step, so the deduction drops by $200.

What is a deduction worth in tax dollars?

A deduction lowers taxable income, not the tax bill dollar for dollar. Its value is the deductible interest times your tax bracket rate. As a hypothetical example, not an IRS figure: if a filer in a 22% bracket deducts $10,000, taxable income falls by $10,000 and federal income tax by $2,200 ($10,000 x 0.22). The same $10,000 would be worth $1,000 at a 10% rate.

Do you need to itemize, and what goes on the return?

No. The fact sheet says the deduction is available for both itemizing and non-itemizing taxpayers. The IRS fact sheet FS-2026-04 on the new form says eligible taxpayers can claim it “whether they itemize deductions or claim the standard deduction,” and that car loan interest is Part IV of Schedule 1-A. The VIN of the purchased vehicle “must be reported on Schedule 1-A,” and the fact sheet says the VIN must be included for any year in which the deduction is claimed. When your return can be filed is covered in when tax season starts in 2027.

What will your lender send?

The fact sheet says lenders or other recipients of qualified interest must file information returns with the IRS and furnish statements to taxpayers showing the total interest received during the taxable year.

For 2025, IRS news release IR-2025-105 (Oct. 21, 2025) gave transition relief: lenders can avoid penalties if “they make a statement available to the buyer indicating the total amount of interest received.” For 2026, the IRS instructions for the vehicle loan interest (VLI) statement, Form 1098-VLI (12/2026), apply “for calendar year 2026 and subsequent years.” They set a $600 threshold, and say it applies separately to each covered loan. In plain terms, a lender reports on the form when the interest on a loan reaches $600. We did not confirm the date lenders must furnish 2026 statements; check the Form 1098-VLI instructions for it.

Car loan interest deduction checklist for buyers

Run through this list before you rely on the deduction, whether you bought in 2025 or are shopping now. The IRS rules above are the source for every item.

1. The vehicle is new to you, not used.
2. The loan was originated after Dec. 31, 2024.
3. You bought it for personal use, not business or commercial use.
4. The loan is secured by a lien on the vehicle.
5. It is a car, minivan, van, SUV, pick-up truck or motorcycle under 14,000 pounds gross vehicle weight rating.
6. Final assembly was in the United States: check the vehicle information label or the plant in the VIN through the NHTSA VIN Decoder.
7. It is a loan, not a lease.
8. You have the VIN to report on Schedule 1-A.
9. You know your MAGI, because the deduction shrinks above $100,000 ($200,000 joint).

Mark tax-prep dates on the January 2027 printable calendar and see the December 2026 printable calendar alongside the year-end money deadlines. Another new deduction with its own form codes is covered in our W-2 box 12 codes guide. Print the one-page rules sheet below for your loan folder.