IRS Says Some New-Car Buyers May Deduct Up to $10,000 in Loan Interest

People considering a new car or minivan purchase may be able to deduct part of the interest paid on their vehicle loan, the Internal Revenue Service said in a recent reminder to taxpayers.

In a tax tip, the IRS explained the rules for a federal deduction of as much as $10,000 a year in qualifying auto loan interest. The tax break is available to eligible taxpayers whether they itemize deductions or claim the standard deduction.

The write-off applies only to qualifying interest. It does not cover the vehicle’s purchase price or the full monthly payment, and it is a deduction rather than a $10,000 tax credit.

Which Vehicles Count

Eligible vehicles include cars, minivans, SUVs, pickup trucks and motorcycles. To qualify, the vehicle must be new, have a gross vehicle weight rating under 14,000 pounds and undergo final assembly in the United States. Used vehicles and leases are not eligible.

That distinction can matter for shoppers weighing a purchase against a lease, since leasing a new minivan does not qualify for the deduction.

The IRS said buyers can verify eligibility by checking the vehicle information label at the dealership, using the vehicle identification number, or looking up the assembly location through the National Highway Traffic Safety Administration’s VIN Decoder.

Loan and Income Rules

The loan must have been made after the end of 2024, used to buy a qualifying vehicle for personal use rather than business purposes, and secured by a lien on the vehicle. If a qualifying loan is later refinanced, interest on the refinanced amount is generally still eligible, the IRS said.

The annual deduction is capped at $10,000. It starts to phase out for taxpayers with modified adjusted gross income above $100,000, or above $200,000 for joint filers. The vehicle’s VIN must be listed on the tax return for each year the deduction is claimed.

Car loan interest was included among the federal deductions created under last year’s tax law. The IRS reminder was intended to explain the eligibility rules, not to announce a new benefit.

Buyers should confirm both the vehicle’s eligibility and their own tax situation before relying on the deduction in their purchase plans.