Where to Put Car Loan Interest on Your Tax Return

Car loan interest on your tax return goes in one of two places, and sometimes both. The personal-use portion of interest on a qualifying new, American-assembled vehicle goes on Schedule 1-A (Form 1040), Part IV, up to $10,000 per year for loans originated after December 31, 2024.¹ The business-use portion goes on Schedule C, Schedule E, or Schedule F, depending on what the vehicle is used for. Which form applies, and how much you can deduct, depends on the vehicle, the loan, and how you drive.

Personal Use: Schedule 1-A, Part IV

For tax years 2025 through 2028, personal car loan interest is no longer treated as nondeductible personal interest under Section 163(h)(4).² The deduction goes on Schedule 1-A (Form 1040), a form created for deductions added under recent legislation, and Part IV is labeled for car loan interest.³ You can claim it whether you take the standard deduction or itemize, up to $10,000 regardless of filing status.⁴

The vehicle and loan both have to qualify:

The original use of the vehicle must begin with you. Used cars are out.
Final assembly must have occurred in the United States. The NHTSA VIN decoder tool confirms this.
The vehicle must be for personal use, not commercial or fleet use.
The loan must have been originated after December 31, 2024.
The loan must be secured by a first lien on the vehicle. Lease payments do not qualify.
The vehicle must be a car, minivan, van, SUV, pickup truck, or motorcycle with a gross vehicle weight rating under 14,000 pounds.

You must enter the Vehicle Identification Number on your return for any year you claim the deduction.¹ Leave the VIN off and the IRS treats the interest as ordinary personal interest, which means no deduction.

Your lender should send you Form 1098-VLI (Vehicle Loan Interest Statement) by January 31 if you paid $600 or more in interest during the year. The statement shows total interest received, the vehicle’s year, make, model, and VIN, and the outstanding principal.⁵ If you paid less than $600 and no 1098-VLI arrives, monthly statements or a year-end summary from the lender work.

The deduction phases out at higher incomes. Once modified adjusted gross income exceeds $100,000 (or $200,000 on a joint return), the allowable deduction drops by $200 for every $1,000 above that threshold, and it disappears entirely at $150,000 single or $250,000 joint.² Schedule 1-A walks you through the calculation.

Business Use: Schedule C, Line 16

Self-employed taxpayers and independent contractors deduct the business portion of car loan interest as a trade or business expense under Section 162, whether or not the vehicle qualifies for the personal deduction.⁶ Sole proprietors and single-member LLCs report it on Schedule C (Form 1040):

Interest reported to you on a Form 1098 or 1098-VLI goes on Line 16a.
Other interest goes on Line 16b.⁷

A detail that trips people up: if you use the standard mileage rate (72.5 cents per mile for 2026) instead of actual expenses, you still deduct car loan interest separately on Schedule C. Interest is not built into the per-mile rate.⁸ Gas, maintenance, and depreciation are covered by the mileage rate; the business share of interest is on top.

Calculating the Business Share

The IRS requires you to split vehicle expenses between business and personal use based on actual miles driven.⁹ Divide business miles by total miles for the year, then multiply that percentage by the total interest you paid. If you drove 12,000 miles total and 7,200 were for business, 60% of your interest is deductible on Schedule C.

Commuting between home and your regular workplace is not business mileage. Trips between job sites, driving to clients, and travel to temporary work locations are.

Rental Property and Farm Use

Not all business vehicle interest goes on Schedule C. If you drive to manage rental properties, the business share belongs on Schedule E.¹⁰ Farmers report vehicle interest on Schedule F.¹¹ The math is the same, just on a different form.

Mixed Personal and Business Use

You cannot deduct the same interest twice. If the vehicle qualifies for the Schedule 1-A deduction and you also use it for business, split the interest first by business-use percentage. The business share goes on Schedule C, E, or F. The remaining personal share is what you enter on Schedule 1-A.⁷ You cannot claim the full amount in both places.

W-2 Employees

The Tax Cuts and Jobs Act suspended the miscellaneous itemized deduction for unreimbursed employee business expenses, including car loan interest for work driving, through 2025. That suspension has expired for 2026, so employees who itemize can again deduct unreimbursed business expenses to the extent they exceed 2% of adjusted gross income.¹² The 2% floor plus the standard deduction still makes itemizing impractical for many employees unless their unreimbursed costs are large. Armed forces reservists, fee-basis state or local government officials, and qualified performing artists kept the deduction during the suspension years.

What Doesn’t Work

Buying a car with a home equity loan or HELOC does not turn the interest into deductible mortgage interest. Home equity debt interest is deductible only when the borrowed funds are used to buy, build, or substantially improve the home securing the loan.¹³ The IRS follows how the money was actually spent. HELOC proceeds spent on a vehicle produce nondeductible interest.¹⁴

Medical and charitable driving are also a dead end for interest. The fixed mileage rates for those uses (20.5 cents per mile for medical, 14 cents for charity) already account for operating costs, and car loan interest is not separately deductible on top. This is the opposite of the business mileage rule.

Records You Need

For the personal deduction, keep the Form 1098-VLI or lender statement, the purchase agreement showing the vehicle was new, and confirmation of American final assembly. The VIN itself goes on Schedule 1-A, and without it the deduction is disallowed by statute.²

For any business deduction, keep a contemporaneous mileage log. The IRS expects date, destination, business purpose, and miles driven for each trip, recorded as trips happen rather than reconstructed at year-end.⁹ Smartphone tracking apps are fine. Hold records at least three years from the filing date; six years if there’s any chance of a substantial understatement of income.¹⁵

Penalty Risk

Deducting personal interest as a business expense, or inflating your business-use percentage, can trigger the accuracy-related penalty of 20% of the underpaid tax, plus interest.¹⁶ The penalty also applies if you understate your tax liability by the greater of 10% of the correct tax or $5,000, a threshold that is easier to reach than most filers assume. A daily mileage log with dates, destinations, and purposes is the simplest defense if the IRS asks how you arrived at your business-use percentage.

1
Internal Revenue Service. One, Big, Beautiful Bill Act: Tax Deductions for Working Americans and Seniors
2
Office of the Law Revision Counsel. 26 USC 163 – Interest
3
Internal Revenue Service. Schedule 1-A, Additional Deductions: What to Know About the New Form
4
Internal Revenue Service. Topic No. 505 – Interest Expense
5
Internal Revenue Service. Instructions for Form 1098-VLI
6
Office of the Law Revision Counsel. 26 US Code 162 – Trade or Business Expenses
7
Internal Revenue Service. Instructions for Schedule C (Form 1040)
8
Internal Revenue Service. The Standard Mileage Rates and Maximum Automobile Fair Market Values Have Been Updated for 2026
9
Internal Revenue Service. Topic No. 510, Business Use of Car
10
Internal Revenue Service. 2025 Instructions for Schedule E (Form 1040) – Supplemental Income and Loss
11
Internal Revenue Service. Instructions for Schedule F (Form 1040) – Profit or Loss From Farming
12
Congressional Research Service. Expiring Provisions in the Tax Cuts and Jobs Act (TCJA, P.L. 115-97)
13
Internal Revenue Service. Real Estate (Taxes, Mortgage Interest, Points, Other Property Expenses)
14
Internal Revenue Service. Home Mortgage Interest Deduction
15
Internal Revenue Service. Topic No. 305, Recordkeeping
16
Internal Revenue Service. Accuracy-Related Penalty