Can You Write Off Car Loan Interest? The $10,000 Cap and Business Use

Yes, you can write off car loan interest, but only under one of two specific rules. If you bought a new, U.S.-assembled vehicle with a loan that originated after December 31, 2024, a temporary deduction lets you write off up to $10,000 of interest per year through 2028, even for purely personal use. Separately, if you’re self-employed and use a car for your business, you can deduct the business-use share of your interest, as taxpayers have been able to do for years. W-2 employees, in most cases, cannot deduct car loan interest at all.

The New Personal Vehicle Deduction (2025–2028)

The One, Big, Beautiful Bill Act created a deduction, sometimes called “no tax on car loans,” that applies to tax years 2025 through 2028. It’s available whether you itemize or take the standard deduction, so there’s no Schedule A threshold to worry about.¹

To qualify, your loan and vehicle must meet all of these conditions:

The vehicle must be new. Its original use must start with you, so used and certified pre-owned cars don’t count.
Final assembly must occur in the United States. You can check the vehicle information label at the dealership, or confirm that the VIN begins with 1, 4, or 5.
The loan must have originated after December 31, 2024. Older loans don’t qualify no matter when you make the payments.
The loan must be secured by the vehicle as a first lien. Unsecured personal loans used to buy a car are out.
The vehicle’s gross weight rating must be under 14,000 pounds, which covers essentially all passenger cars, SUVs, minivans, and pickups.

Refinancing a qualifying loan generally keeps the interest eligible.¹

The $10,000 Cap and Income Phaseout

The most you can deduct in a year is $10,000 in qualified interest. Above certain income levels, that ceiling shrinks. The phaseout starts at $100,000 of modified adjusted gross income for single filers and $200,000 for married couples filing jointly. For every $1,000 (or part of $1,000) your MAGI exceeds the threshold, the deduction drops by $200.²

A single filer earning $125,000 loses $5,000 of the deduction, leaving $5,000 on the table. At $150,000 the deduction disappears for single filers. Joint filers hit zero at $250,000.

Forms to File

Report this deduction on Schedule 1-A (Form 1040), Part IV. Schedule 1-A is a new form the IRS created to handle the deductions added by the 2025 law.³ You’ll need to include the vehicle’s VIN on your return every year you claim the deduction.²

Your lender will send Form 1098-VLI, the Vehicle Loan Interest Statement, showing interest paid, the VIN, loan origination date, and outstanding principal. If it hasn’t arrived by early February, contact the lender.⁴

The Business-Use Deduction

If you’re self-employed, an independent contractor, or a business owner, you can deduct car loan interest tied to business driving. Federal tax law carves interest allocable to a trade or business out of the general ban on personal interest deductions.⁵

The deduction is proportional. If you drive the car 60% for business and 40% for personal errands, 60% of the annual interest is deductible.⁶ When a corporation or partnership owns the car outright and uses it entirely for business, the full interest amount is deductible as a business expense.

The math: divide business miles by total miles for the year to get your business-use percentage, then multiply that percentage by the annual interest your lender reports. The remainder tied to personal use isn’t deductible under the business rule, though it may qualify under the personal vehicle deduction if the car meets those separate requirements.

How Interest Fits With Mileage vs. Actual Expenses

Self-employed drivers pick one of two methods for vehicle costs, and interest is handled differently in each.

With the standard mileage rate (72.5 cents per business mile for 2026), the rate covers operating costs like fuel, maintenance, insurance, and depreciation.⁷⁶⁸

With the actual expense method, you total every operating cost for the year (gas, oil, tires, repairs, insurance, registration, depreciation, and interest), then multiply by your business-use percentage.⁸ Interest is one line inside the total rather than a separate add-on.

The mileage rate is simpler and often better for newer, efficient vehicles with low operating costs. The actual expense method tends to win for expensive-to-operate cars. Either way, interest is deductible.

W-2 Employees: The Boundary

If your income comes on a W-2, you generally cannot deduct car loan interest for work driving, no matter how many miles you cover or whether your employer reimburses you. The Tax Cuts and Jobs Act of 2017 eliminated the unreimbursed employee expense deduction, and later legislation made that change permanent.⁹

Four narrow categories of W-2 workers can still deduct vehicle expenses on Form 2106:

Armed Forces reservists traveling more than 100 miles from home for reserve duties.
Fee-basis state or local government officials.
Qualified performing artists who meet strict income and multi-employer tests.
Employees with impairment-related work expenses.

These deductions are available whether or not you itemize.¹⁰ Everyone else on a W-2 is limited to the personal vehicle deduction on Schedule 1-A, which has nothing to do with work use.

Where Each Deduction Gets Reported

The right form depends on which deduction you’re claiming and how your business is set up.

Personal vehicle interest: Schedule 1-A (Form 1040), Part IV.³
Sole proprietors and single-member LLCs: Schedule C (Form 1040), on the interest line in the expenses section.¹¹
Corporations: Form 1120 (C corps) or Form 1120-S (S corps), as a business expense.
Eligible W-2 employees: Form 2106, flowing to Schedule 1 (Form 1040).¹⁰

If the same vehicle serves both purposes and qualifies for both deductions, you can claim the business-use share on Schedule C and the personal-use share on Schedule 1-A. IRS proposed regulations confirm that interest qualifying as business interest is independently deductible under the business rules even if it would also meet the personal vehicle loan interest definition.²

Records You Need to Keep

For the business deduction, the IRS expects a mileage log recorded at or near the time of each trip, showing the date, starting and ending points, business purpose, and miles driven. A spreadsheet or app works. You also need total annual mileage so the percentage can be verified.⁶ Logs reconstructed after the fact often get challenged and sometimes thrown out entirely.

Keep supporting documents (mileage logs, lender statements, Form 1098-VLI, receipts) for at least three years after filing the return where you claimed the deduction, which matches the standard IRS audit window.¹² Because that window extends in certain situations, holding records for six years is a reasonable default.

1
Internal Revenue Service. One, Big, Beautiful Bill Act: Tax Deductions for Working Americans and Seniors
2
Federal Register. Car Loan Interest Deduction
3
Internal Revenue Service. IRS Published Schedule Taxpayers Will Use to Claim Deductions on No Tax on Tips, No Tax on Overtime, No Tax on Car Loans, No Tax on Seniors
4
Internal Revenue Service. Instructions for Form 1098-VLI (Rev. December 2026)
5
Office of the Law Revision Counsel. 26 U.S. Code 163 – Interest
6
Internal Revenue Service. Publication 463 (2025), Travel, Gift, and Car Expenses
7
Internal Revenue Service. IRS Sets 2026 Business Standard Mileage Rate at 72.5 Cents Per Mile, Up 2.5 Cents
8
Internal Revenue Service. Topic No. 510, Business Use of Car
9
Legal Information Institute (LII). Tax Cuts and Jobs Act of 2017 (TCJA)
10
Internal Revenue Service. Instructions for Form 2106 (2025)
11
Internal Revenue Service. Instructions for Schedule C (Form 1040) (2025)
12
Internal Revenue Service. How Long Should I Keep Records?