"No Tax on Car Loan Interest" - New Tax Bill
Article #: 18920
Last Updated: January 08, 2026
Certain taxpayers can now deduct up to $10,000 of qualifying vehicle loan interest (the "no tax on car loan interest" provision discussed in section 70203 of the new tax bill). Both itemizing and non-itemizing taxpayers can take this deduction. Taxpayers who are filing MFS cannot take this deduction.
A qualified passenger vehicle must meet these qualifications:
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Vehicle has to be a new passenger vehicle purchased for personal use.
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Vehicle must have had its final assembly in the United States.
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Use https://vpic.nhtsa.dot.gov/decoder/ to confirm the final assembly location.
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Vehicle must have a gross vehicle weight rating (GVWR) under 14,000 lbs. Vehicle must be purchased with a loan (not a lease).
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Loan must originate after December 31, 2024.
In Drake Tax, use the 1A screen to make entries for up to four vehicles. Available entries are as follows:
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TS - Select if the vehicle belongs to the taxpayer or spouse.
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Loan origination date - Enter the date the loan was originated. To qualify, the loan must have been originated after December 31, 2024, by the taxpayer, used to purchase an eligible passenger vehicle for personal use, and secured by a first lien on the vehicle.
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Outstanding principal - Enter the amount of outstanding principal on the loan as of January 1, 2025 or the date of origination, whichever is later.
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Year - Enter the year of the vehicle.
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Make - Enter the make of the vehicle.
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Model - Enter the model of the vehicle.
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Vehicle identification number (VIN) - Enter the vehicle identification number (VIN) of the vehicle.
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Business interest - Enter the portion of interest that will be deducted as a business deduction on a different form, such as Schedule C (Form 1040), Schedule E (Form 1040), or Schedule F (Form 1040).
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Personal interest - Enter the portion of interest that will be applied to Schedule 1-A (Form 1040).
The deduction is subject to phase out when the MAGI is over $100,000 single or head of household, or $200,000 married filing jointly. Taxpayers who are filing MFS cannot take this deduction.
Drake Tax - Schedule 1-A: Additional Deductions