What the deduction is
The One, Big, Beautiful Bill created a deduction for qualified passenger vehicle loan interest, often called “no tax on car loan interest”. It lets you deduct interest on a loan for a personal car, something that was not deductible before. It is temporary: it covers tax years 2025 through 2028. The IRS published the final rules in September 2026.
You claim it on Schedule 1-A, so you don’t need to itemize. It lowers your taxable income, but not your adjusted gross income or your self-employment tax.
Which vehicles qualify
The vehicle has to be:
- New. The original use has to start with you. Used cars don’t qualify, and neither does a car you buy at the end of a lease.
- A car, minivan, van, SUV, pickup truck or motorcycle made for public roads, with a gross vehicle weight rating under 14,000 pounds.
- Assembled in the United States. You can check the final assembly point with the NHTSA VIN decoder website or on the label on the vehicle’s window.
- Bought for personal use. When you take out the loan, you have to expect that you, your spouse or certain relatives will use it for personal purposes more than half the time. That expectation is set once, when you take the loan.
Which loans qualify
- Taken out after December 31, 2024, to buy the vehicle.
- Secured by a first lien on the vehicle.
- Items financed with the car count when they are part of the same purchase, such as sales tax, fees, extended warranties and service contracts. Negative equity rolled over from a trade-in does not count.
- Refinanced loans qualify only up to the balance of the original loan.
- Leases don’t qualify, and neither do loans from a family member or other related party.
Your lender should send you a statement of the interest you paid, on Form 1098-VLI, if it was $600 or more.
The income limit
The deduction goes down by $200 for each $1,000 of modified adjusted gross income (MAGI) above $100,000, or $200,000 if you are married filing jointly. A fraction of $1,000 counts as a full step. For most people, MAGI is the same as their AGI.
Example: you paid $2,400 of interest in 2026.
- With a MAGI of $100,000 or less, you deduct the full $2,400.
- With a MAGI of $108,500, it drops by $1,800, so you deduct $600.
A deduction of the full $10,000 disappears completely at a MAGI of $150,000 ($250,000 for joint filers).
If you use the car for gig work
Most drivers use one car for both work and personal life. Three rules matter:
- The business share of the interest goes on Schedule C, even if you use the standard mileage rate. That is allowed for self-employed people only, and it lowers your self-employment tax too.
- The car only qualifies for Schedule 1-A if you expected to use it for personal purposes more than half the time when you took the loan. If you bought it mainly to drive for apps, deduct only the business share, on Schedule C.
- You can’t deduct the same interest twice. Each dollar goes on Schedule C or on Schedule 1-A.
An example for 2026: a driver with $35,000 of profit before interest pays $2,000 of interest on a new car, and uses it 30% for business.
| Tax saved | |
|---|---|
| All $2,000 on Schedule 1-A | $175 |
| $600 (30%) on Schedule C and $1,400 on Schedule 1-A | $256 |
Splitting saves more because the Schedule C part also lowers self-employment tax. To keep the business share, you need a mileage log that shows your business and total miles.
How to claim it
- Get your interest statement from your lender (Form 1098-VLI) or add up the interest from your loan statements.
- Take the business share first, if you are self-employed and use the car for work, on Schedule C.
- Fill in Part IV of Schedule 1-A with the rest, including the vehicle identification number (VIN).
- Keep your records: the purchase contract, the loan documents, the window label or VIN check, and your mileage log.
To see how your car costs change your taxes as a driver, use our gig driver tax calculator. For the other new deductions on Schedule 1-A, see our guide to the no tax on tips deduction.