Updated October 28, 2026. Quick answer: The car loan interest deduction lets you deduct up to $10,000 of interest a year on a new personal vehicle loan taken after 2024, section 163(h)(4) of the Internal Revenue Code from Public Law 119-21 section 70203. It is reduced by $200 for every $1,000 (or portion) your modified adjusted gross income is over $100,000 ($200,000 joint), and it covers taxable years through 2028. The amounts are fixed in the statute, so they are the same for 2027 as for 2026.
More on the 2026 tax figures: the 2026 car loan interest deduction.
The 2027 amounts
| Piece | Amount | Where it is written |
|---|---|---|
| Maximum interest counted | $10,000 a year | Section 163(h)(4)(C)(i) |
| Phase-out starts above modified adjusted gross income of | $100,000 single, $200,000 joint | Section 163(h)(4)(C)(ii) |
| Reduction | $200 for each $1,000 (or portion) over the start | Section 163(h)(4)(C)(ii) |
| Loans covered | Debt incurred after December 31, 2024 | Section 163(h)(4)(B)(i) |
| Years covered | Taxable years after 2024 and before 2029 | Section 163(h)(4)(A), the exception to personal interest |
The statute removes this interest from the personal-interest bucket: “the term ’personal interest’ shall not include qualified passenger vehicle loan interest”. The cap reads “The amount of interest taken into account by a taxpayer under subparagraph (B) for any taxable year shall not exceed $10,000.” The amounts below are written into the statute itself, so there is no 2027 Revenue Procedure to wait for.
How the phase-out works
The deduction is “reduced (but not below zero) by $200 for each $1,000 (or portion thereof) by which the modified adjusted gross income of the taxpayer for the taxable year exceeds $100,000 ($200,000 in the case of a joint return)”.
Worked example, computed with invented amounts: a single filer with $4,000 of qualifying interest and $110,000 of modified adjusted gross income is over the start by $10,000 (computed: $110,000 minus $100,000). That is ten steps of $1,000, so the reduction is $2,000 (computed) and the deduction is $2,000 (computed). The reduction applies to the amount otherwise allowable, after the $10,000 cap.
Which loans and vehicles qualify
Qualified interest is paid on “indebtedness incurred by the taxpayer after December 31, 2024, for the purchase of, and that is secured by a first lien on, an applicable passenger vehicle for personal use”. The vehicle has to be new to you and built for the road: “the original use of which commences with the taxpayer” and “which has a gross vehicle weight rating of less than 14,000 pounds”. It has to be a car, minivan, van, sport utility vehicle, pickup truck or motorcycle, and the statute adds that “Such term shall not include any vehicle the final assembly of which did not occur within the United States.”
What is excluded and what the return must show
The statute excludes a loan to finance fleet sales, a loan for a commercial vehicle not used for personal purposes, any lease financing, a loan for a vehicle with a salvage title and a loan for a vehicle intended for scrap or parts. Loans owed to a related person are also out: “Indebtedness described in subparagraph (B) shall not include any indebtedness owed to a person who is related” to the taxpayer under the cited related-party rules. The return has to carry the vehicle identification number: “Interest shall not be treated as qualified passenger vehicle loan interest under this paragraph unless the taxpayer includes the vehicle identification number”.
Who can claim it
The Act makes the deduction available without itemizing by adding to the non-itemizer list “so much of the deduction allowed by section 163(a) as is attributable to the exception under section 163(h)(4)(A)”. It applies to “indebtedness incurred after December 31, 2024”, so a loan taken in 2027 qualifies if the other tests are met.
Common mistakes
- Counting a used car. The vehicle’s original use has to begin with you.
- Counting a lease payment. Lease financing is excluded by the statute.
- Forgetting the assembly rule. A vehicle whose final assembly was outside the United States does not qualify.
- Leaving off the vehicle identification number. The statute does not treat the interest as qualified without it.
Related: Form 1040 line 12 standard or itemized deductions, the 2027 standard deduction, the 2027 student loan interest deduction, and the 2027 tax numbers.
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- Public Law 119-21 (One Big Beautiful Bill Act), July 4, 2025, enacted text (U.S. Government Publishing Office): www.govinfo.gov
- Related official page (not quoted): IRS Fact Sheet FS-2025-03, Working Families Tax Cuts: tax deductions for working Americans and seniors: www.irs.gov
Read from the primary documents linked above on October 28, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer or the IRS itself is the right place to confirm anything consequential.