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can you claim car loan interest on taxes

You generally can claim car loan interest on your taxes now, but only in specific situations and under new temporary rules that started with the 2025 tax year.

Quick Scoop

  • A new federal deduction lets many taxpayers claim personal car loan interest for new cars bought with qualifying loans after December 31, 2024.
  • The deduction applies to interest paid in tax years 2025–2028 and is capped at about $10,000 of interest per year per taxpayer, with income phaseouts.
  • You also can still deduct car loan interest separately when the vehicle is used for business, self‑employment, or certain investment purposes, under the long‑standing business‑use rules.

When you can claim car loan interest

For 2025 returns filed in 2026, there are now two broad paths where car loan interest can show up on your tax return.

  1. New “personal car interest” deduction (2025–2028)
    • Applies to interest on loans taken out after December 31, 2024, to buy a new personal‑use vehicle (not used, not leased).
 * You can claim up to roughly $10,000 of interest paid in a year, subject to income limits and phase‑outs: phaseout starts around $100,000 modified AGI for single filers and $200,000 for married filing jointly.

 * The car must be titled to you, and the loan must be secured by the vehicle (typical auto loan structure).
  1. Business, self‑employed, or investment use
    • If you’re self‑employed or use your car in a business, you may deduct the business‑use share of your car loan interest as a business expense, subject to standard vehicle rules.
 * You typically track either:
   * Actual expenses (including interest) multiplied by your business‑use percentage, or
   * The IRS standard mileage rate, which generally replaces the interest deduction.

When you cannot claim car loan interest

There are still plenty of situations where car loan interest is not deductible.

  • Older loans or used cars
    • The new deduction only applies to qualifying loans taken out after 12/31/2024 to buy a new car that you are the first user.
* Interest on loans for used cars or loans originated before 2025 typically does **not** qualify for the new personal deduction (though business‑use rules may still apply).
  • Leases and unsecured loans
    • Leases do not qualify for the new interest deduction because there is no loan interest in the same sense.
* Personal lines of credit or credit cards used to buy a car, if not secured by the vehicle as collateral, generally do not meet the “qualified vehicle loan” definition.
  • Purely personal, pre‑2025 debt
    • Before this new law, interest on personal auto loans was not deductible at all, and that remains true for non‑qualifying loans and years outside 2025–2028.

How the deduction actually works

The mechanics matter if you want to make sure you get the benefit.

  • You can use it with the standard deduction
    • Unlike mortgage interest on Schedule A, the new car interest deduction is claimed on an additional schedule (often labeled something like Schedule 1‑A) and then flows to Form 1040, so you can still take the standard deduction.
  • Documentation you’ll need
    • Lenders will phase in a special interest statement (often called Form 1098‑style or 1098‑VLI) showing how much qualifying interest you paid; 2025 is a transition year, so you may have to rely on a year‑end loan statement.
* You must report the vehicle’s VIN and total qualifying interest, then apply the annual cap and the income phaseout where applicable.
  • Multiple vehicles
    • If you have more than one qualifying new‑car loan, you can add up the interest across all eligible cars, then deduct the total up to the annual limit.

Practical tips and “what should you do?”

Because this topic is trending right now—new rules, lots of confusion—tax pros are urging people to plan ahead for the 2025–2028 window.

  • Before buying:
    • If you are already planning to buy a new car and will finance it, doing so in 2025 or later under a standard secured auto loan could make the interest deductible under the new rules.
* If your income is well above the phaseout thresholds, the benefit may be reduced or eliminated, so the deduction alone usually shouldn’t drive the decision.
  • After buying:
    • Keep every year‑end loan statement and any lender‑issued interest forms, plus your purchase contract showing it is a new car purchased after 12/31/2024.
* If you use the car partly for business, talk to a tax professional about whether to use actual expenses or the standard mileage rate so you do not double‑count interest.
  • Always confirm specifics:
    • The IRS guidance for this new deduction is detailed and still relatively new, and states may or may not follow the federal rules for state income tax.
* A qualified tax professional or reputable tax software updated for the 2025 rules can walk through your exact income, vehicle, and loan details.

Bottom line: Yes, you can claim car loan interest on taxes now in many cases—but only if your loan, your car, and your income fit the new 2025–2028 rules or existing business‑use rules, so checking your specific situation with current IRS guidance or a tax pro is essential.

Information gathered from public forums or data available on the internet and portrayed here.