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IRS Tax Tip 2026-79, Nov. 3, 2026
Now is a popular time of year for people to purchase a new vehicle. What they might not know is that this new purchase could qualify for a tax benefit. Under the Working Family Tax Cuts, taxpayers may be able to deduct their car loan interest, if certain eligibility criteria are met.
Let’s go over the basic qualifications for this deduction.
Who can claim the deduction?
The deduction is available for both itemizing and non-itemizing taxpayers. The VIN must be included on the tax return for any year the deduction is claimed. The maximum annual deduction is $10,000 and phases out for taxpayers with modified adjusted gross income over $100,000 ($200,000 for joint filers).
What vehicles qualify?
The vehicle type can include a car, minivan, SUV, pick-up truck, or motorcycle. Additionally, the vehicle must:
- Have a gross vehicle weight rating of less than 14,000 pounds
- Have undergone final assembly in the United States
- Be new. Used vehicles do not qualify
Ways to verify final assembly
- The information label attached to the vehicle at the dealership
- The vehicle identification number
- The National Highway Traffic Safety Administration, NHTSA VIN Decoder (verify vehicle assembly location)
What interest qualifies?
Interest must be paid on a loan that:
- Was originated after Dec. 31, 2024
- Was used to purchase a qualifying vehicle used by the taxpayer
- Was secured by a lien on the vehicle
- Was for personal use and not for business use
- Was for a personal use (non-business) vehicle
Leases are not eligible. If a qualifying vehicle loan is later refinanced, interest paid on the refinanced amount is generally eligible.