Car Loan Interest Deduction 2026: Who Qualifies for the $10,000 Write-Off

If you are shopping for a car before year end, there is a new tax angle to know about. For 2025 through 2028, you can deduct up to $10,000 a year of interest on a car loan, something the tax code has not allowed for personal vehicles since 1986. But the deduction comes with strings: the car must be new, assembled in the United States, for personal use, and bought with a loan taken out after 2024. Buy the wrong car, or lease instead of finance, and you get nothing.

The short version: You can deduct up to $10,000 a year of interest on a loan for a new, U.S.-assembled car, SUV, van, pickup or motorcycle bought for personal use, with the loan taken out after December 31, 2024. You claim it on Schedule 1-A whether or not you itemize. It shrinks once modified AGI passes $100,000 ($200,000 joint) and is gone at $150,000 ($250,000 joint). Used cars and leases do not qualify. New York does not offer a matching state deduction.

Who qualifies: the checklist

All of these have to be true:

Assembly location is the trap. The same model can be built in different countries in different production runs, so check the actual car on the lot, not the brand. The window sticker lists the final assembly point, and the free NHTSA VIN decoder shows the plant for a specific VIN.

How much it is worth

The cap is $10,000 of interest per return per year. Most people will deduct far less, because a typical new-car loan does not generate $10,000 of interest.

Example: you finance $45,000 on a new, U.S.-assembled SUV at 6.9% for 60 months. Your first full year of interest is about $2,860. In the 22% federal bracket, the deduction saves you about $630 that year, and a little less each year after as the balance falls.

Because it is a deduction, not a credit, what you save depends on your bracket. In the 12% bracket the same interest saves about $340; in the 24% bracket, about $690.

The income limit

The deduction starts shrinking when modified AGI goes over $100,000 for single filers or $200,000 on a joint return. It drops by $200 for every $1,000 above the threshold and disappears completely at $150,000 single or $250,000 joint.

A single filer with $115,000 of modified AGI is $15,000 over the line, so the maximum deduction falls by $3,000, from $10,000 to $7,000. With interest of $2,860, she can still deduct all of it.

How you claim it

• On Schedule 1-A of Form 1040, the same new schedule used for the tips, overtime and senior deductions.
• You do not need to itemize. It is taken on top of the standard deduction.
• You report the VIN of the vehicle on your return.
• Your lender reports the interest. Lenders must send you a statement of the interest you paid on a qualifying loan, similar to a mortgage interest statement. Keep it with your tax papers.

What about New York?

New York State income tax starts from your federal adjusted gross income. The car loan deduction comes off after AGI on the federal return, so it does not flow through to New York. As of October 2026, New York has not adopted a matching state deduction, so the benefit is federal only for New York and New York City residents.

Timing a year-end purchase

• Buying in December gives you only a few weeks of 2026 interest. On the $45,000 example, a car financed in early November produces only about $500 of interest by December 31. The real value comes in 2027 and 2028.
• The deduction ends after 2028 unless Congress extends it. A loan that runs to 2031 gets deductions only through 2028.
• Paying cash or leasing gets no deduction. If you were going to finance anyway, financing a qualifying car now captures more years of the benefit.
• Refinancing a qualifying loan generally keeps the deduction, up to the original balance.

If you also use the car for business

This deduction is for personal vehicles. If you are self-employed and use a vehicle for business, the business share of the interest is already deductible on Schedule C when you use actual expenses, and you cannot deduct the same interest twice. For mostly-business vehicles, the standard mileage rate (72.5 cents through June 2026 and 76 cents from July 1) or depreciation is usually the bigger write-off. Track your miles either way.

Get the deduction right

London's Tax Services prepares federal and New York returns for individuals, families and small business owners from our office at 75 South Broadway in White Plains, serving Westchester County, the Bronx and New York City. We check that the vehicle qualifies, apply the income limit, and coordinate the deduction with the tips and overtime deductions and the rest of Schedule 1-A. Book a free 15-minute call or call (646) 917-7714 before you sign at the dealership.