Car Loan Interest Deduction: Schedule 1-A Part IV

For tax year 2025, you may be able to deduct interest you paid on a loan for a new car. The IRS calls it the qualified passenger vehicle loan interest deduction. You report it on Schedule 1-A (Form 1040), Part IV. It is a deduction, not a credit, and you can claim it whether you take the standard deduction or itemize. IRS: Schedule 1-A (Form 1040), 2025

The loan tests

The loan generally has to meet these tests:

The loan was made after December 31, 2024.
You are the person who took out the loan.
The loan paid for the vehicle. Lease payments do not count.
The loan is secured by a first lien on that vehicle.

IRS: Instructions for Form 1040 (2025), No Tax on Car Loan Interest

What counts as the vehicle

It is new. Your use of the vehicle must be the first use. A used vehicle does not qualify.
It is a car, minivan, van, SUV, pickup truck, or motorcycle. Its gross vehicle weight rating is under 14,000 pounds.
Its final assembly took place in the United States. The vehicle information label shows where.
You expect to use it for personal purposes more than half the time. A vehicle you expect to use mostly for business does not count.

How much you can deduct

The deduction is capped at $10,000 of qualifying interest paid or accrued in 2025. It is reduced when your modified adjusted gross income is above $100,000, or above $200,000 if you file jointly. Schedule 1-A has the steps for the reduction. Your income for this test comes from line 3 of Schedule 1-A, Part I.

What to write on the return

You must include the vehicle identification number (VIN) on your return. If interest was paid on more than one vehicle, include the VIN for each one. The deduction flows from Schedule 1-A to Form 1040, line 13b, through line 38 of the schedule. IRS: Schedule 1-A, Part IV, lines 22 to 30

Interest that does not count

Interest you already deducted somewhere else on your return cannot also go on Schedule 1-A. This includes vehicles you use in a business. Interest on items that vehicle loans do not usually cover, such as liability insurance or a trailer, does not count. Debt from an old car you traded in does not count either.

Read No Tax on Tips and Overtime for the other Schedule 1-A deductions. Read Schedule 1 basics to see how Schedule 1-A flows into your return.

What the cap means in practice

If you paid $12,000 of qualifying interest in 2025, only $10,000 of it can be deducted. If you paid $8,000, the whole $8,000 is the starting amount, before any reduction for income. The cap applies to interest paid or accrued in 2025. It does not apply to the total loan balance.

Leases, used cars, and a loan you took over

A lease does not qualify, because the loan proceeds must pay for the vehicle. A used car does not qualify, because the original use must start with you. If you became the borrower because the previous borrower died, the interest can still count in some cases, as long as the loan stays secured by a first lien on the vehicle. The instructions explain the details.

Records to keep

Keep the loan statement that shows the interest paid in 2025, the purchase contract, and the vehicle's VIN. The vehicle information label can show where the vehicle was assembled. Keep these papers with your other tax records.

The limit depends on your filing status. If you file jointly, the $200,000 limit applies to your combined income. If you file separately or use another status, the limit is $100,000. Check the amount on your own line 3 before you assume the full $10,000 is available.

General information, not advice about your situation.

Sources: Sources: IRS, Schedule 1-A (Form 1040), Additional Deductions (2025) (https://www.irs.gov/pub/irs-pdf/f1040s1a.pdf); IRS, Instructions for Form 1040 (2025), No Tax on Car Loan Interest (https://www.irs.gov/pub/irs-pdf/i1040.pdf) This is general information, not advice about your specific return.

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