The new car loan interest deduction: who qualifies, which vehicles count and how to check a VIN

A deduction created by the 2025 tax law lets many people who financed a new car, SUV, pickup or motorcycle deduct up to $10,000 a year of loan interest for tax years 2025 through 2028. It is available whether you itemize or take the standard deduction. Final Treasury and IRS regulations, printed in Internal Revenue Bulletin 2026-39 dated Sept. 21, take effect Nov. 9, 2026. Here is how the deduction works, based on IRS guidance.

The basics

Those terms come from the IRS fact sheet on the new deductions and the final regulations. If a qualifying loan is later refinanced, the IRS says interest on the refinanced amount is generally still eligible.

How the income phase-out works

The final regulations include this example: a single filer paid $7,000 of qualifying interest and had modified adjusted gross income of $124,200. That is $24,200 over the $100,000 threshold, which rounds up to 25 increments of $1,000. At $200 each, the reduction is $5,000, so the deduction is $2,000.

Because the reduction is $200 per $1,000, the full $10,000 deduction is gone at $150,000 of MAGI for a single filer and $250,000 for joint filers. A smaller deduction disappears sooner. For this purpose, MAGI is adjusted gross income plus certain income excluded for people living abroad or in some U.S. territories.

The $10,000 cap applies per return. In another example in the rules, a married couple filing jointly who each financed a car and together paid $11,000 of interest can deduct no more than $10,000.

Which vehicles qualify

The vehicle must be new to you, meaning its original use begins with you. The final rules add some detail:

• Loan paperwork matters. If you finance the purchase, original use does not begin with you unless the loan documents treat the vehicle as new.
• Dealer demonstrators. A vehicle a dealer always held for sale, even if it was titled and used as a demonstrator, can still have its original use begin with the buyer.
• Lease buyouts. In the rules' example of a lease followed by a purchase, original use began with the leasing company, so the person who bought the car at the end of the lease did not qualify.
• Personal use. A vehicle counts as bought for personal use if, when you take out the loan, you expect it to be used for personal purposes by you, your spouse or certain relatives more than 50% of the time. An example in the rules treats 15% rideshare driving as acceptable.

How to check final assembly with a VIN

The test is where the vehicle's final assembly took place, not where the automaker is based. The IRS says you can rely on either of two sources:

1. The vehicle information label on new vehicles at the dealership, which lists the final assembly point.
2. The vehicle identification number. The plant of manufacture is encoded in the VIN. Enter the VIN in NHTSA's free VIN decoder, then look at the "Plant Information" section at the bottom of the results, which shows the build plant and country. NHTSA notes that this information is reported by the manufacturer.

Check the specific vehicle before you sign, since the test turns on where that vehicle was assembled.

What interest counts

According to examples in the final regulations, interest on the amount financed for the vehicle and items customarily financed with it, such as an extended warranty, sales tax, title and registration fees and a dealer document fee, can qualify. Other amounts rolled into the loan do not. If you finance a trailer along with the truck, or roll negative equity from a trade-in into the new loan, you must allocate the interest and deduct only the share tied to the vehicle. If you refinance and take cash out, interest on the cash-out portion does not qualify.

Paperwork and reporting

• Lender statement. Lenders that receive $600 or more of interest in a year on a covered loan must report it to the IRS on Form 1098-VLI and send you a statement. The form includes the VIN and whether the vehicle's final assembly occurred in the U.S.
• VIN on your return. You must include the vehicle identification number on your return for each year you claim the deduction. On 2025 returns, the deduction was figured on Part IV of Schedule 1-A.
• Keep records. Hold on to your purchase and loan contracts in case you need to show how the amount financed was split.

This article summarizes IRS guidance and is not tax advice. Your situation may differ, so check IRS.gov or talk with a tax professional before you claim the deduction.