The 2026 Auto Loan Interest Deduction: Is Your Car Payment Tax-Deductible?

For decades, the answer to "Can I deduct my car loan interest?" was a resounding "No"—unless you were using the vehicle for business. But as we enter the 2026 tax season, that has officially changed.

Under the One Big Beautiful Bill (OBBB), millions of Americans can now deduct the interest paid on their personal auto loans. However, this isn't a "blanket" deduction. The IRS has set very specific criteria to encourage domestic manufacturing and support middle-class families.

How Much Can You Deduct?

You can deduct up to $10,000 per year in qualified auto loan interest. For most taxpayers with a standard 5-to-7-year loan on a new vehicle, the interest in the first few years often totals between $1,500 and $3,500, meaning this new law could effectively wipe out that entire cost from your taxable income.

The 4 Mandatory "Green Lights" for Eligibility

To claim this deduction on your 2025 or 2026 return, your vehicle and loan must meet these four requirements:

1. The "Made in America" Rule: The most critical factor. The vehicle must have undergone final assembly in the United States.
   • Pro-Tip: You can verify this by checking the sticker on the driver’s side doorjamb or by looking up your VIN on the NHTSA website. If the first digit of your VIN is a 1, 4, or 5, it was assembled in the U.S.
     
     
2. The "Original Owner" Rule: The deduction is only available for new vehicles purchased after December 31, 2024. Unfortunately, used cars, even if they were "new to you", do not qualify.
   
   
3. The "Weight Class" Rule: The vehicle must have a Gross Vehicle Weight Rating (GVWR) of less than 14,000 pounds. This covers most sedans, SUVs, and light-duty pickup trucks (such as the Ford F-150 or Chevy Silverado), but excludes heavy commercial machinery.
   
   
4. The "Personal Use" Rule: The vehicle must be used for personal reasons more than 50% of the time. If you primarily use it for business, you should continue to use standard business mileage or actual expense deductions.

Do You Need to Itemize?

No. This is one of the best features of the new law. The auto loan interest deduction is an "above-the-line" deduction (claimed on the new Schedule 1-A). This means you can claim it even if you take the Standard Deduction. You don't need a mortgage or massive medical bills to see the benefit.

What Documents Do You Need?

By January 31, 2026, your lender (e.g., Ford Credit, GM Financial, or your local Credit Union) should have sent you a statement showing the total interest paid in 2025.

• Keep your VIN handy: You are required to list the vehicle's VIN directly on your tax return to prove it was assembled in the U.S.