Car loan interest is deductible now. Four things quietly kill it.

Up to $10,000 of interest per return, per year, on a loan taken out after December 31, 2024 to buy a new personal-use vehicle, secured by a first lien on that vehicle. It runs through tax year 2028 and then it expires. Itemizing is not required: the final regs confirm the deduction is subtracted from adjusted gross income in computing taxable income, so your standard deduction stays fully intact next to it.

Your lender handles the paperwork from here. Starting with tax year 2026, anyone who collects $600 or more of interest on one of these loans in a calendar year has to file a Form 1098-VLI and send you a copy, listing the interest along with the year, make, model, and VIN of the car. For 2025 the IRS was lenient: Notice 2025-57 let lenders satisfy the rule with an informal statement of total interest received. So if you are still sorting out last year, check that number yourself instead of assuming a form is coming.

Three tests, and the third one is where people get burned. Original use has to begin with you, which rules out used cars, dealer demonstrator units, and buying out the lease on the car you have been driving for three years. Gross vehicle weight rating has to be under 14,000 pounds, which nearly everything on a dealer lot passes. And final assembly has to have happened in the United States. The badge tells you nothing. A Japanese brand built in Kentucky qualifies. An American brand built in Mexico does not.

You do not have to guess at it. The regulations let you rely on either the plant-of-manufacture code in the VIN, which you can run through NHTSA's free VIN decoder in about a minute, or the final assembly point printed on the window sticker. Do that before you sign, not in April. Two builds of the same model can come from different countries, and the salesperson is not the one filing your return.

Here is the rule most buyers will trip over. Negative equity rolled from an old car into the new loan was not borrowed to buy the new car, so it does not qualify. Treasury said so plainly in the final regs and turned down lender requests to include it. What you get instead is a pro rata split. Finance $50,000 where $5,000 of it is non-qualifying, and 90% of your interest is deductible while the other 10% is not.

The list of things that do count is more generous than you would guess. Sales tax, title and registration fees, an extended warranty or service plan, GAP insurance, credit insurance, tire and paint protection, even a key fob replacement plan, all of it rides along as long as it is financed as part of the purchase. Ordinary collision and liability coverage does not. Neither does anything unrelated to the car. And if you refinance, only the balance outstanding on the day you refinance carries over, so cashing out or bolting on new products in a refi creates interest you cannot deduct.

Start with the cap, because it is not the constraint anyone thinks it is. Edmunds put the average new-vehicle loan in the second quarter of 2026 at $44,156 financed at a 7.0% APR, generating $9,811 of interest across the entire life of the loan. The $10,000 limit is annual. You could pay that loan off from first payment to last and never reach a single year's cap. Run that same $44,156 at 7% over 72 months and year one throws off roughly $2,900 of interest, the biggest year of the loan, since the balance only falls from there. At a 22% marginal rate that is about $640 back. At 12%, about $350.

Then the income test, which is the part worth checking before you count on the money. Above $100,000 of modified adjusted gross income, or $200,000 filing jointly, the deduction drops by $200 for every $1,000 over the line. Read what it applies to: the amount otherwise allowable, not the $10,000 ceiling. So that $2,900 deduction does not fade gently. It is cut in half about $7,250 past the threshold and hits zero around $114,500 of MAGI. Someone with the full $10,000 keeps a piece of it until $150,000. The smaller your deduction, the sooner it vanishes.