Claiming the deduction comes down to five steps: confirm the car qualifies, total the interest your lender reported, check your income against the phase-out, enter the amount on Schedule 1-A, and file. Because this is an above-the-line deduction, you can do all of it and still take the standard deduction.
The car loan interest deduction created by the One Big Beautiful Bill Act (OBBBA) runs for tax years 2025 through 2028. It lets you deduct up to $10,000 of interest per year on a qualifying auto loan. Here is the whole process, in order.
Step 1: Confirm the vehicle qualifies
Most rejected claims fail here, so start here. Four gates all have to be true:
- New vehicle. Used cars do not qualify. Neither do leases — a lease is not a loan. See used cars and leases for why.
- Personal use. The car has to be for your personal use, not a business fleet vehicle.
- Loan originated in the 2025–2028 window. The financing has to be taken out during the covered years.
- Final assembly in the United States. This is the test people misread. It is decided by the VIN, not the brand on the trunk. A foreign nameplate assembled in the US can qualify; an American brand assembled abroad may not.
The vehicle also has to be under 14,000 lbs GVWR, which covers essentially every personal car, truck, and SUV.
Do not guess on assembly. Decode your VIN with the checker to confirm the final-assembly location, and browse qualifying cars or search by model if you are still shopping.
Step 2: Get your interest total
You deduct interest only — not principal, and not the purchase price of the car. If you paid $6,200 in interest across the year, that $6,200 is what you are working with, regardless of how much the car cost.
Your lender typically reports the interest you paid on a Form 1098 or an equivalent year-end statement. That figure is your starting number. If you have not received the statement by late January, log in to your loan servicer's site or call them — they are required to report it. See Form 1098 and the deduction for what to look for on the document.
If your total interest for the year exceeds $10,000, you cap the deduction at $10,000. Anything above that is not deductible.
Step 3: Check your income against the phase-out
The deduction shrinks as income rises. The phase-out begins above:
- $100,000 modified AGI for single filers, and
- $200,000 modified AGI for joint filers.
Below those thresholds, your qualifying interest is deductible up to the cap. Above them, the amount you can claim gets reduced as your income climbs — the higher you go, the less survives.
If your modified AGI is anywhere near those numbers, do not eyeball it. Run the MAGI phase-out calculator to see exactly how much of your interest you can still deduct. If your income is well under the threshold, you can skip the math — you get the full qualifying amount up to $10,000.
Step 4: Enter it on Schedule 1-A
This deduction is claimed on Schedule 1-A as an adjustment to income. That is what makes it above-the-line: it is subtracted before the standard-versus-itemized decision, so you claim it whether or not you itemize. You can take the standard deduction and still deduct your car loan interest on top of it.
On the form, you enter your qualifying interest amount (after applying the $10,000 cap and any phase-out reduction). The result flows through to your Form 1040 and lowers your adjusted gross income. See the Schedule 1-A walkthrough for the line-by-line detail.
If you use tax software, you will not fill out the form by hand — the program builds Schedule 1-A for you once you enter the interest in the right section. Our software guides cover TurboTax and H&R Block .
Step 5: File
Once Schedule 1-A is complete and attached to your Form 1040, file the return as usual. Keep your loan statement and VIN documentation with your tax records in case you ever need to show the vehicle and the interest qualified.
Interest you pay in 2025 is claimed on the return you file in early 2026, and the same pattern repeats each year through 2028. For the full timing picture — including what to do if you already filed — see when to claim the deduction .
A quick worked example
Say you are a single filer with $80,000 in modified AGI. You bought a new, US-assembled SUV in 2025 and paid $4,500 in interest that year. Your income is well under $100,000, so no phase-out applies. Your interest is under the $10,000 cap. You enter $4,500 on Schedule 1-A, and it reduces your AGI — on top of your standard deduction.
Frequently asked questions
Do I have to itemize to claim the car loan interest deduction?
No. It is an above-the-line adjustment on Schedule 1-A, so you claim it and still take the standard deduction. Itemizing is neither required nor helpful for this particular deduction.
What if I paid more than $10,000 in interest?
You cap the deduction at $10,000 for the year. Interest above that amount is not deductible. The cap resets each covered tax year, so a very large loan may hit it again the next year.
How do I prove my car was assembled in the United States?
Final assembly is tied to the vehicle's VIN, not the brand. Decode your VIN to confirm the assembly location, and keep that result with your tax records. See the glossary for how "final assembly" is defined.
Can I claim it if I bought the car for my business?
No. The deduction is for personal-use vehicles. A vehicle used for business does not qualify under this provision, though other business deductions may apply — ask a tax professional about your situation.
This is general information, not tax advice. Confirm your specific situation with a qualified tax professional. Figures reflect the OBBBA car loan interest deduction for tax years 2025–2028.
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