What the auto loan interest deduction is
Personal interest — including credit card interest and auto loan interest — has generally not been deductible since the Tax Reform Act of 1986. The One Big Beautiful Bill Act created a temporary exception for new passenger vehicle loans.
For tax years 2025 through 2028, you can deduct up to $10,000 per year in interest paid on a loan for a new passenger automobile. The deduction is above the line, meaning it reduces your adjusted gross income whether or not you itemize.
The vehicle must be new — used car loans do not qualify. The loan must be for a passenger automobile, not a commercial vehicle or heavy truck.
Income limits and phase-out
The auto loan interest deduction phases out for higher-income taxpayers. The phase-out begins at $100,000 of modified adjusted gross income for single filers and $200,000 for married filing jointly filers.
For taxpayers below those thresholds, the full deduction of up to $10,000 is available. For those above, the deduction reduces proportionally until it phases out completely.
Most self-employed workers, freelancers, and small business owners with moderate incomes will qualify for the full deduction, making this a meaningful new benefit for anyone who financed a new vehicle in 2025 or 2026.
How much can you actually save
If you paid $8,000 in auto loan interest in 2026 and are in the 22% federal tax bracket, the deduction saves approximately $1,760 in federal income tax. For self-employed workers, the deduction also reduces the income subject to self-employment tax, adding further savings.
Auto loan interest is typically front-loaded — you pay more interest in the early years of the loan. If you took out a new car loan in 2025 or early 2026, your interest payments this year are likely at their highest, making the deduction most valuable right now.
What records you need
To claim the deduction, you need documentation of the interest paid during the year. Your lender will typically provide a year-end statement or Form 1098 showing the interest paid. Keep this document with your tax records.
RoboTax can connect to your accounts and surface auto loan interest payments so a tax professional can confirm you are capturing this new deduction. Many people do not realize personal auto loan interest is now deductible, so this is one of the easier wins to miss.
Frequently asked questions
Is auto loan interest deductible in 2026?
Yes, for new passenger vehicle loans. The One Big Beautiful Bill Act created a temporary deduction of up to $10,000 per year in auto loan interest for tax years 2025 through 2028.
Does the auto loan interest deduction apply to used cars?
No. Only loans for new passenger automobiles qualify. Used car loans are not eligible for this deduction.
Do I have to itemize to claim the auto loan interest deduction?
No. The deduction is above the line, meaning it reduces your adjusted gross income whether you take the standard deduction or itemize.
What is the income limit for the auto loan interest deduction?
The deduction phases out starting at $100,000 MAGI for single filers and $200,000 for married filing jointly. Below those thresholds, the full $10,000 deduction is available.
Sources and further reading
These resources are included for educational context. RoboTax is not tax, legal, or financial advice, and this content should be reviewed with a qualified tax professional before being used for filing decisions.