A significant tax break could put hundreds, even thousands, of dollars back in your pocket this year if you financed a new car. The auto loan interest deduction allows eligible taxpayers to write off interest paid on qualifying vehicle loans.
To qualify, the vehicle must be new, purchased primarily for personal use, and weigh under 14,000 pounds. Crucially, the car must have undergone final assembly in the U.S. You can verify assembly location using your vehicle identification number (VIN) or checking with the National Highway Traffic Safety Administration.
This deduction is available for tax years 2025 through 2028, with a maximum of $10,000 annually. Income limits apply: single filers can earn up to $100,000 modified adjusted gross income (MAGI), and married couples filing jointly up to $200,000. The deduction phases out for higher incomes. It is available regardless of whether you take the standard deduction or itemize.
To claim the deduction, gather your auto loan statements showing interest paid and your vehicle's VIN. You will need to complete a Schedule 1-A form with your tax return, or your tax professional or software will handle it. Consult a tax preparer if unsure.
While the deduction runs through December 31, 2028, experts advise against letting tax benefits solely drive major purchase decisions.