Several federal tax breaks for buying a car are available in 2026, but the mix changed after the One Big Beautiful Bill (OBBB) became law in mid-2025. Personal buyers get a new deduction of up to $10,000 a year in interest on loans for new, U.S.-assembled vehicles, plus a sales tax deduction that now has more room under a higher state and local tax cap. Federal clean vehicle credits, meanwhile, are gone. Business buyers still have the strongest write-offs: the standard mileage rate, actual expenses, Section 179, and restored 100% bonus depreciation.
Car Loan Interest Deduction for Personal Buyers
The OBBB created a new deduction for interest paid on car loans, available for the 2025 through 2028 tax years. You can deduct up to $10,000 of qualifying interest per year, and you get it whether you take the standard deduction or itemize.1Internal Revenue Service. Treasury, IRS Provide Guidance on the New Deduction for Car Loan Interest Under the One Big Beautiful Bill That last point is what makes it useful to most buyers: it sits on top of the standard deduction rather than requiring you to itemize.
The vehicle and the loan both have to meet several conditions:2Federal Register. Car Loan Interest Deduction
- The vehicle must be new and you must be the original owner. Used vehicles do not qualify.
- Final assembly must occur in the United States.
- You must expect to use the vehicle for personal purposes more than 50% of the time.
- The loan must be secured by a first lien on the vehicle. Unsecured personal loans and lease financing don’t count.
- Gross vehicle weight rating must be under 14,000 pounds, which covers essentially all passenger cars, SUVs, pickups, minivans, and motorcycles.
- You must report the vehicle identification number on your tax return.
There’s no income limit and no cap on the vehicle’s purchase price. The only dollar ceiling is the $10,000 per year on deductible interest. Fleet purchases and vehicles used entirely for business don’t qualify under this rule, though business vehicles have their own separate write-offs.
Sales Tax Deduction on a Vehicle Purchase
If you itemize on Schedule A, you can deduct the state and local sales tax you paid on a car, truck, motorcycle, motor home, or RV.3Internal Revenue Service. Instructions for Schedule A You take this as part of the state and local tax (SALT) deduction, and you choose between deducting your sales taxes for the year or your state income taxes. You can’t do both.
The OBBB raised the annual SALT cap from $10,000 to $40,000 for 2025, indexed at 1% per year. For 2026, the cap is $40,400 for single filers and married couples filing jointly, or $20,200 for married filing separately. The old $10,000 ceiling had made this deduction irrelevant for many taxpayers in high-tax states; the higher cap gives it real room. The cap covers all your state and local taxes combined, not just vehicle sales tax.
One wrinkle catches people off guard. If your state gives you a sales tax credit for a trade-in, you only paid tax on the net amount, so your federal deduction is based on the reduced taxable price, not the full sticker.
Federal EV Credits Are No Longer Available
If you’re expecting to claim an electric vehicle credit for a 2026 purchase, you can’t. The federal clean vehicle credits were repealed for vehicles acquired after September 30, 2025. That includes the New Clean Vehicle Credit under IRC Section 30D (up to $7,500), the Used Clean Vehicle Credit under Section 25E (up to $4,000), and the Commercial Clean Vehicle Credit under Section 45W.4Internal Revenue Service. FAQs for Modification of Sections 25C, 25D, 25E, 30C, 30D, 45L, 45W, and 179D Under the One Big Beautiful Bill
If you took delivery of a qualifying clean vehicle on or before September 30, 2025, you can still claim the credit on your return for the year of acquisition. A new clean vehicle credit was worth up to $7,500, split between critical mineral sourcing and battery component requirements.5Internal Revenue Service. Credits for New Clean Vehicles Purchased in 2023 or After A used clean vehicle priced at $25,000 or less generated a credit equal to 30% of the sale price, up to $4,000.6Internal Revenue Service. Used Clean Vehicle Credit
For 2026 and later purchases, no federal clean vehicle credit exists. Some states still run their own EV rebate or credit programs, so check yours before you rule out an electric purchase.
Business Vehicle Deductions
A vehicle used in a trade or business unlocks the largest tax breaks available on a car purchase. The threshold that matters is 50%: business use above that percentage qualifies you for accelerated write-offs. You track business use with one of two methods.
Standard Mileage Rate
The IRS standard mileage rate for business use in 2026 is 72.5 cents per mile.7Internal Revenue Service. 2026 Standard Mileage Rates Notice 2026-10 Multiply the rate by every qualifying business mile, and that’s your deduction. The rate already covers gas, insurance, maintenance, and depreciation. Parking and tolls for business trips are deductible separately.
To use the standard mileage rate on a vehicle you own, you have to elect it in the first year the vehicle is available for business. After that first year, you can switch between the mileage rate and actual expenses. For a leased vehicle, if you start with the mileage rate, you must stick with it for the entire lease.
Actual Expenses Method
The alternative is to track every vehicle cost and deduct the business portion. Qualifying expenses include fuel, repairs, insurance, registration, loan interest, and depreciation. Multiply total costs by your business-use percentage: $12,000 in vehicle costs at 70% business use gives you an $8,400 deduction.
Actual expenses usually beats the mileage rate for expensive vehicles or ones with high operating costs. It also demands more paperwork, because you need receipts for every expense rather than just a mileage log.
Commuting Doesn’t Count
Driving from home to your regular workplace is a personal commute and never deductible, even if you’re taking work calls on the way.8Internal Revenue Service. Publication 463 (2025), Travel, Gift, and Car Expenses Parking at your regular workplace is also a nondeductible commuting cost. Business travel that does qualify includes driving between two work locations in the same day and trips to a client’s office.
Depreciation, Section 179, and Bonus Depreciation
When you use actual expenses, you recover the vehicle’s cost through depreciation. Two provisions can compress that recovery dramatically, and both require business use above 50%.
Section 179 lets you expense the cost of qualifying business equipment in the purchase year rather than stretching it over multiple years. Bonus depreciation runs alongside it. The OBBB restored 100% bonus depreciation for qualifying property acquired after January 19, 2025, ending the phase-down that had been scheduled to drop the rate to 40% for 2025.9Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One Big Beautiful Bill
Passenger Car Caps
Passenger vehicles weighing 6,000 pounds or less are subject to annual depreciation limits under IRC Section 280F, regardless of what the vehicle actually cost.10Office of the Law Revision Counsel. 26 USC 280F – Limitation on Depreciation for Luxury Automobiles For vehicles placed in service in 2026, the caps are:11Internal Revenue Service. Revenue Procedure 2026-15
- With bonus depreciation: $20,300 in year one, $19,800 in year two, $11,900 in year three, $7,160 each year after.
- Without bonus depreciation: $12,300 in year one, then the same $19,800, $11,900, and $7,160 in years two, three, and beyond.
A $50,000 sedan used 100% for business can’t be fully written off in year one even with bonus depreciation. You take $20,300 the first year and continue claiming annual amounts until the cost is recovered.
Heavy Vehicles Over 6,000 Pounds
Vehicles with a gross vehicle weight rating above 6,000 pounds but not more than 14,000 pounds are exempt from the Section 280F caps. That covers many full-size SUVs, pickups, and cargo vans. The Section 179 deduction on these heavy vehicles is capped at $31,300, but any remaining cost is eligible for 100% bonus depreciation.12Internal Revenue Service. 2025 Instructions for Form 4562 Combined, that means a business buyer can typically write off the full cost in the year the vehicle is placed in service. GVWR is on a label inside the driver’s door jamb; don’t confuse it with curb weight.
All depreciation and Section 179 deductions are reduced proportionally for personal use. A vehicle used 70% for business gives you 70% of the deduction. If business use drops to 50% or less in a later year, you have to switch to straight-line depreciation and may face recapture of the accelerated deductions you already claimed.
What Changes if You Lease
You can’t depreciate a leased vehicle because you don’t own it. Under the actual expenses method, you deduct the business portion of your lease payments. Under the standard mileage rate, lease payments themselves aren’t deductible, because the rate already accounts for vehicle costs.
For higher-value leased vehicles, the IRS requires you to add a small “lease inclusion amount” to income each year, which trims the tax benefit. That mechanism keeps taxpayers from leasing to sidestep the Section 280F caps. The 2026 amounts are in Rev. Proc. 2026-15 and depend on the vehicle’s fair market value at the start of the lease.11Internal Revenue Service. Revenue Procedure 2026-15
Records You’ll Need
Vehicle deductions are one of the most audited items on tax returns, and the burden of proof is entirely on you. Records need to be contemporaneous, meaning created close to the time of the trip or expense, not reconstructed at tax time.
For business mileage, keep a log with the date, destination, business purpose, and odometer readings for every business trip.8Internal Revenue Service. Publication 463 (2025), Travel, Gift, and Car Expenses You also need the total miles driven for the year so you can calculate your business-use percentage. Mileage apps have made this easier; the required data points are the same regardless of format.
Under actual expenses, keep receipts for fuel, repairs, insurance, and every other vehicle cost. The purchase agreement establishes your depreciable basis and the date placed in service. For the car loan interest deduction, keep Form 1098 or lender statements showing interest paid, and record the VIN for your return.
Inadequate records can lead to complete disallowance of vehicle deductions on audit. The IRS won’t accept estimated logs or after-the-fact reconstructions, and auditors recognize a fabricated log when they see one. A short daily habit of logging trips as you take them beats any recordkeeping system you’ll never actually use.