New Vehicle Buyers: Car Loan Interest May Be Eligible for a Tax Deduction
The IRS says interest on a qualifying new-vehicle loan may be claimed under the Working Family Tax Cuts. Here is who qualifies and what to ask clients.
What the IRS is saying
The IRS reminds taxpayers that buying a new vehicle may also bring a tax benefit. Under the Working Family Tax Cuts, taxpayers may be able to claim a deduction for the interest they pay on a car loan, as long as they meet certain eligibility criteria. The IRS published this as Tax Tip 2026-79 on Nov. 3, 2026.
Who can claim it
The deduction is available to both itemizing and non-itemizing taxpayers. This means clients who take the standard deduction may still be able to claim it, as long as the other requirements are met.
Keep these limits in mind when you prepare the return:
- The maximum annual deduction is $10,000.
- The amount phases out for taxpayers whose modified adjusted gross income is over $100,000, or over $200,000 for joint filers.
- The vehicle identification number (VIN) must be included on the tax return for every year the deduction is claimed.
What vehicles qualify
The vehicle can be a car, minivan, SUV, pickup truck, or motorcycle. It also has to meet these conditions:
- Its gross vehicle weight rating is less than 14,000 pounds.
- Its final assembly took place in the United States.
- It is new. Used vehicles do not qualify.
The IRS lists three ways to verify where a vehicle was assembled: the information label attached to the vehicle at the dealership, the VIN, and the NHTSA VIN Decoder, which shows the assembly location.
What loan interest qualifies
Interest must be paid on a loan that meets all of these conditions:
- It was originated after Dec. 31, 2024.
- It was used to purchase a qualifying vehicle that the taxpayer uses.
- It is secured by a lien on the vehicle.
- It is for personal use, not business use.
Leases are not eligible. If a qualifying vehicle loan is later refinanced, interest paid on the refinanced amount is generally eligible.
What to tell your clients
Many clients will not know this benefit exists. Before you prepare the return, you may want to ask:
- Was the vehicle bought new, or is it used?
- Where was the vehicle assembled? The dealership label, the VIN, or the NHTSA VIN Decoder can help confirm this.
- Is the car loan a loan, or is it a lease?
- When was the loan originated?
- Is the vehicle used for personal purposes, or for the business? Vehicles used for business are not covered by this personal deduction.
- Is the VIN listed on the tax return?
This article summarizes IRS Tax Tip 2026-79. For the complete rules, review IRS Publication 6126 (Purchased a new vehicle?) and, for lenders, Publication 6127 (Are you an auto loan lender?).
Informational only, based on the IRS source linked above; not tax or legal advice for a specific situation.