Short answer: yes. The 2025–2028 car loan interest deduction created by the One Big Beautiful Bill Act is an above-the-line deduction. You claim it as an adjustment to income on Schedule 1-A, which means you do not have to itemize — you can take the standard deduction and still deduct your qualifying car loan interest on top of it.
That single fact makes this deduction unusually valuable. Most people who buy a car take the standard deduction, and historically that meant no benefit from things like personal-interest costs. This deduction is different: it sits above the line where the standard-vs-itemized choice is made, so it lowers your adjusted gross income regardless of which path you take.
Why "above-the-line" is the whole story
Your tax return has two broad stages. First, you total your income and subtract adjustments to income — the "above-the-line" deductions — to arrive at your adjusted gross income (AGI). Then you subtract either the standard deduction or your itemized deductions. Above-the-line deductions come first, so they are available to everyone.
The car loan interest deduction lives in that first stage, alongside familiar adjustments like student loan interest and educator expenses. You take the standard deduction like normal, and the car loan interest is subtracted separately, before it. Nothing about taking the standard deduction blocks it.
Contrast that with mortgage interest, which is an itemized deduction. To benefit from mortgage interest you have to give up the standard deduction and itemize — a trade most filers lose. Car loan interest has no such catch.
What you actually deduct
The deduction covers interest on a qualifying auto loan — not principal, and not the price of the car. For the 2025–2028 window the cap is $10,000 of interest per year, and it phases out as income rises: it begins shrinking above $100,000 modified AGI for single filers and $200,000 for joint filers.
To qualify, the vehicle must be new, for personal use, financed with a loan taken in the 2025–2028 window, and — the test people miss most — assembled in the United States. The badge on the trunk doesn't decide that; the VIN does.
How to claim it
- Confirm the car qualifies. Check that final assembly was in the US ( decode your VIN ) and that it's a new, personal-use vehicle.
- Get your interest total. Your lender reports the interest you paid; for many buyers it arrives on a Form 1098 or an equivalent year-end statement.
- Check your income. If your modified AGI is near the phase-out, run the calculator to see how much of the interest survives.
- Enter it on Schedule 1-A. The amount flows through to your Form 1040 as an adjustment to income — while you still claim the standard deduction below it.
Frequently asked questions
Do I have to itemize to deduct car loan interest?
No. This is the key difference from mortgage interest. The car loan interest deduction is above-the-line, so you claim it on Schedule 1-A and still take the standard deduction. Itemizing is neither required nor helpful for this particular deduction.
Can I take both the standard deduction and the car loan interest deduction in the same year?
Yes — in the same year, on the same return. The standard deduction and the above-the-line car loan interest deduction are computed at different stages of the return, so claiming one does not reduce or cancel the other.
Does taking the standard deduction reduce how much car loan interest I can deduct?
No. The amount of car loan interest you can deduct depends on your qualifying interest (up to $10,000), your income relative to the phase-out, and whether the vehicle passes the tests — not on whether you itemize. The standard deduction has no effect on the calculation.
Is this the same as the mortgage interest deduction?
No. Mortgage interest is an itemized deduction that only helps if you give up the standard deduction. Car loan interest is above-the-line and stacks with the standard deduction, which is why far more buyers can actually use it.
This is general information, not tax advice. For an edge case — business use, complex income, or split-assembly vehicles — confirm with a tax professional. Figures reflect the OBBBA car loan interest deduction for tax years 2025–2028.
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