Car loan interest deduction in Arkansas
The car loan interest deduction is a federal benefit. What it means for your Arkansas return depends on whether Arkansas taxes income and how it follows the federal rules.
The federal car loan interest deduction (tax years 2025–2028) applies in Arkansas the same as anywhere — if your vehicle is new, personal-use, US-assembled, financed with a 2025–2028 loan, and your income is under the phase-out. Whether it also lowers your Arkansas state tax depends on state conformity — see below.
How state conformity works
Because the deduction is above-the-line, it reduces your federal adjusted gross income (AGI). Most states that start their own income tax from your federal AGI carry above-the-line federal deductions through automatically — which would mean the deduction lowers your Arkansas taxable income too. But states can set their conformity date or specifically decouple from a federal provision, and this deduction is brand new for 2025.
So the honest answer for Arkansas is: it likely flows through if Arkansas conforms to federal AGI and has not decoupled — but you should confirm with the Arkansas Department of Revenue or a tax professional before counting on the state benefit. The federal deduction itself is not in doubt.
Confirm your federal eligibility first
State treatment only matters if you qualify federally. Check the three tests that trip people up: