Buying A New Car Or Minivan? IRS Reminds Buyers Of Up To $10,000 Loan Interest Deduction

Those shopping for a new car or minivan may be eligible to deduct some of the interest on their vehicle loan, the Internal Revenue Service reminded taxpayers today.

In the November 3 tax tip, the IRS outlined the requirements for a federal deduction of up to $10,000 a year in qualifying car loan interest. The benefit is available to eligible taxpayers whether they itemize or take the standard deduction.

The deduction is for qualifying interest, not the vehicle’s purchase price or the full monthly payment. It is a deduction, not a $10,000 tax credit.

Eligible vehicle types include cars, minivans, SUVs, pickup trucks and motorcycles. The vehicle must be new, have a gross vehicle weight rating below 14,000 pounds, and have undergone final assembly in the United States. Used vehicles and leases do not qualify.

For families comparing a purchase with a lease, that distinction matters: leasing a new minivan does not qualify for this deduction.

The IRS says buyers can check the vehicle’s information label at the dealership, use the vehicle identification number, or check the assembly location through the National Highway Traffic Safety Administration’s VIN Decoder.

The loan must have originated after December 31, 2024, been used to buy a qualifying vehicle for personal rather than business use, and be secured by a lien on that vehicle. If a qualifying loan is later refinanced, interest on the refinanced amount is generally eligible, the IRS said.

The maximum annual deduction is $10,000. It begins to phase out for taxpayers with modified adjusted gross income above $100,000, or $200,000 for joint filers. The vehicle’s VIN must be included on the tax return for each year the deduction is claimed.

As TLS previously reported, car loan interest was among the federal deductions introduced under last year’s tax law. Today’s IRS reminder explains the eligibility rules; it is not the announcement of a new deduction.

Buyers should check the vehicle’s eligibility and their own tax situation before counting on the deduction when budgeting for a purchase.