Some Americans financing a new vehicle may now have another tax deduction worth checking. For tax years 2025 through 2028, eligible taxpayers can deduct up to $10,000 per year of qualified passenger-vehicle loan interest. The deduction can be available even when the taxpayer uses the standard deduction instead of itemizing.

However, not every auto loan qualifies. Generally, the loan must have been incurred after the end of 2024 to purchase a new vehicle for personal use. The vehicle’s original use must begin with the taxpayer, meaning used vehicles do not qualify under this provision. The vehicle must also have undergone final assembly in the United States and meet other IRS requirements.

The maximum deduction is $10,000 annually, but higher-income taxpayers may receive a smaller deduction. The benefit begins phasing out when modified adjusted gross income exceeds $100,000 for individual taxpayers or $200,000 for married couples filing jointly.

Keep your lender statements, vehicle identification number, purchase information, and records showing the interest you paid. These documents can help determine whether the loan meets the requirements.

Before assuming your car payment creates a tax deduction, remember that it is the qualifying interest, not the entire monthly payment, that may be deductible.