TL;DR
- ✅ Up to $10,000 of interest a year, tax years 2025 to 2028, no itemizing needed
- ✅ New personal-use vehicle, final assembly in the U.S., loan taken out after 2024
- ✅ Phases out by $200 per $1,000 of income over $100,000 ($200,000 joint)
- ✅ W-4: Deductions Worksheet line 1c, total to Step 4(b)
What qualifies
The vehicle
New, with you as the first user; gross vehicle weight rating under 14,000 pounds; final assembly in the United States. Check the dealer label, the VIN, or the NHTSA VIN decoder.
The loan
Taken out after December 31, 2024, and secured by the vehicle. The interest you paid in the tax year is what counts.
Your use
Personal use. A vehicle bought for business is not covered by this deduction.
What does not qualify
Used vehicles, lease payments, and loans for vehicles assembled outside the United States.
How the income limit works
Your deduction is reduced by $200 for each $1,000 your modified adjusted gross income is over $100,000 ($200,000 if married filing jointly), rounding down to whole thousands. Someone with $120,000 of income is $20,000 over, so the deduction drops by $4,000. With $9,000 of interest, that leaves $5,000 deductible. You will need the lender’s interest statement and the vehicle’s VIN at filing.
See the car loan deduction in your paycheck — free
Enter your loan interest in the 2026 deductions section and see the change in withholding.
Open the W-4 Calculator →Putting it on the 2026 W-4
On the Step 4(b) Deductions Worksheet, line 1c asks for an estimate of qualified passenger vehicle loan interest up to $10,000, and only if your total income is under $100,000 ($200,000 if married filing jointly). Add it to the other deductions, take the total from line 15, and enter it in Step 4(b). As with the other new deductions, the worksheet uses a simple cutoff, so above the limit it gives you nothing even though a partial deduction may still be allowed on your return.
⚠️ Estimate, do not overstate
Interest falls as the balance does, and it counts only in the year you pay it. Use the interest on last year’s lender statement or your loan schedule rather than the payment amount. If you over-estimate, you will under-withhold; see how to stop owing taxes.
For the other new deductions, see the 2026 W-4 cheat sheet, tips and overtime and the senior deduction. The general rules for Step 4 are in W-4 Step 4 explained.
Frequently asked questions
How much car loan interest can I deduct?
Up to $10,000 a year of qualified passenger vehicle loan interest, per return (a couple with two loans shares one $10,000 cap). It applies for tax years 2025 through 2028.
Which vehicles and loans qualify?
The vehicle must be new (you are the first user), have a gross vehicle weight rating under 14,000 pounds, and have had its final assembly in the United States. It must be for personal use, and the loan must have been taken out after December 31, 2024 and be secured by the vehicle. Used vehicles and lease payments do not qualify.
Is there an income limit?
Yes. The deduction is reduced by $200 for every $1,000 of modified adjusted gross income over $100,000 ($200,000 for joint filers), so it ends at about $150,000 single and $250,000 joint when you have the full $10,000 of interest.
Do I need to itemize?
No. You can take it with the standard deduction. You claim it on Schedule 1-A of your return and must include the vehicle’s VIN.
How do I show it on my W-4?
On the 2026 Step 4(b) Deductions Worksheet, enter an estimate of your qualified vehicle loan interest on line 1c (up to $10,000) if your total income is under $100,000 ($200,000 joint). The worksheet total goes in Step 4(b).
Key terms in this article
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