The Treasury Department and IRS have finalized the rules for the new federal deduction on car-loan interest. The final regulations, published in the Federal Register on Sept. 8 and effective Nov. 9, 2026, settle several questions that matter to anyone who financed a new vehicle in 2025 or plans to buy one before the end of 2028.

The deduction, created by the One Big Beautiful Bill Act signed July 4, 2025, lets eligible taxpayers deduct up to $10,000 a year of interest on a qualifying loan. It applies to tax years 2025 through 2028 and only to loans taken out after Dec. 31, 2024. The IRS says it is available whether you itemize or take the standard deduction.

Who qualifies

  • New vehicles only: The original use of the vehicle must begin with you. Used and "nearly new" vehicles do not qualify; the IRS rejected requests to extend the break to them because the law requires original use.
  • Final assembly in the U.S.: You can check the plant of manufacture encoded in the VIN with NHTSA's online VIN decoder, or read the final assembly point on the window sticker.
  • Eligible types: Cars, minivans, vans, SUVs, pickups and motorcycles with a gross vehicle weight rating under 14,000 pounds.
  • Personal use: At the time you take out the loan, you must expect the vehicle to be used for personal purposes more than 50% of the time.
  • A purchase loan: The loan must be secured by a first lien on the vehicle. Leases do not qualify, and you must report the vehicle's VIN on your tax return.

The $10,000 cap applies per return. The deduction shrinks by $200 for every $1,000 of modified adjusted gross income above $100,000, or $200,000 for joint filers. The final rules confirm head-of-household filers use the $100,000 threshold; Treasury declined requests to raise it.

What the final rules clarify

Negative equity is out. Many buyers roll the unpaid balance of a trade-in into a new loan. Interest on that rolled-over amount is not deductible, the final rules say, because it relates to the earlier vehicle, not the new one. If a loan mixes eligible and ineligible amounts, interest is split on a pro rata basis.

Common add-ons are in. Interest on amounts customarily financed with the purchase and directly related to the vehicle, such as vehicle service plans, extended warranties, sales taxes and vehicle-related fees, can qualify, and the final rules expand that list of examples. Accessories that become part of the vehicle can also count. Financed collision and liability insurance that is not credit insurance does not.

Model year doesn't matter, but assembly does. A leftover prior-model-year vehicle sold new still qualifies. But Treasury refused to decide eligibility by make and model, noting that the same model can be built in different countries. Nissan's 2027 Rogue Hybrid, for example, will initially be imported from Japan, Nissan Americas chairman Christian Meunier told CNBC, while gas Rogues are built in Smyrna, Tennessee. Check the specific vehicle you buy.

Lease buyouts and refinancing. Buying out your own lease generally won't qualify, because the original use began with the leasing company. Refinancing an eligible loan keeps the deduction only up to the balance outstanding on the original loan.

Lenders that receive $600 or more in interest in a year on a qualifying loan must file an information return with the IRS and send a statement to the borrower, so most buyers should get a year-end figure to work from.