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If you bought a new car last year, you could qualify for this tax break. Here’s what to know.

February 11, 2026 / 5:00 AM EST / CBS News

If you’re one of the millions of Americans who purchased a new car last year, you could benefit from a new tax break that allows taxpayers to deduct interest paid on their auto loans.

The car loan tax deduction was included in the Republicans’ “big, beautiful bill” act, signed into law by President Trump last summer. Mr. Trump first floated the initiative on the campaign trail in 2024 as a way to help make car ownership “dramatically more affordable” and to boost domestic auto production.

The new deduction could provide relief for car owners, experts said

“The auto loan interest deduction could cut taxes by hundreds or even thousands of dollars for eligible taxpayers, and recent data from the Treasury Department suggest millions of people could claim the deduction this year,” Andrew Lautz, the director of tax policy at the Bipartisan Policy Center, a Washington, D.C.-based think tank, told CBS News.

Car ownership costs are at a record high, with payments for new vehicles approaching $750 per month, according to LendingTree. More consumers are also falling behind on their payments, pushing up the rate of auto loan delinquencies, a recent study by credit rating firm VantageScore shows.

Lautz noted that various restrictions apply to the new car loan tax break, and he advised taxpayers to check with the IRS or a licensed tax preparer before claiming the deduction.

The new tax break mirrors the mortgage interest deduction, which allows homeowners to deduct interest payments on up to $750,000 of mortgage debt, or $375,000 if married and filing separately.

Jeremy Robb, chief economist at Cox Automotive, said that roughly 4 million of the nearly 13.4 million new cars sold in the U.S. last year would be eligible for the deduction. The tax provision applies only to new vehicle purchases, so people who used loans to buy a used car or lease a car last year would not qualify.

Robb estimates that a typical eligible car buyer could claim around $4,000 for the auto loan deduction on their tax return.

What is the auto loan deduction, and how does it work?

The IRS and Treasury Department are still finalizing the details of the car loan deduction. For now, the tax agency advises taxpayers to rely on its outline for the rules when filing their returns this year.

The new deduction allows taxpayers to claim up to $10,000 a year on interest paid on loans to purchase a new American-made car last year. The $10,000 limit applies to each federal tax return. For example, if a married couple is filing separately, the rules stipulate that the $10,000 cap would apply separately to each person’s return.

Only vehicles bought primarily for personal use qualify for the car loan deduction. Notably, eligible vehicles also must have undergone “final assembly” in the U.S., referring to where the car is physically put together before it is shipped to a dealer.

Taxpayers can determine the plant where their vehicle was manufactured by entering their Vehicle Identification Number on the National Highway Traffic Safety Administration’s website.

What are the income limits for the auto loan deduction?

Single taxpayers with up to $100,000 in modified adjusted gross income (MAGI) and married couples earning up to $200,000 are eligible for the full car loan deduction. (Your MAGI is your adjusted gross income plus tax-exempt income. The IRS describes how to calculate it here.) The amount taxpayers can write off is reduced by $200 for each $1,000 in income above the $100,00 and $200,000 income limits.

The deduction is available both to taxpayers who take the standard deduction and to those who itemize deductions, according to the IRS. Deductions reduce a filer’s taxable income, lowering their overall tax bill.

How do I claim the deduction?

To claim the car loan deduction, tax-prep company H&R Block advises people to gather their 2025 auto loan statements. Then they must fill out a Schedule 1-A form with information about their income, auto loan and VIN, and submit it along with their tax return.

How long can I claim the deduction?

The new deduction will be available for new vehicles purchased between Jan. 1, 2025, and Dec. 31, 2028. The tax break is set to expire after 2028.

How much will the car loan deduction save on my taxes?

The typical car buyer could save hundreds — or in some cases thousands — on their taxes as a result of the new auto loan deduction, experts told CBS News. But the exact savings will depend on a filer’s income and the size of their auto loan.

The American Financial Services Association, a consumer credit industry trade group, estimated that car buyers who qualify for the new tax break and who have a car loan rate of 6.5% over six years could deduct $3,000 in the first year of car ownership, and about $1,800 annually over the life of the loan.

Edited by Alain Sherter and Aimee Picchi