Which Cars Meet the Requirements for the $10,000 Interest Deduction in 2026
The OBBB tax package introduced one of the most talked-about new deductions for 2025 filers: the ability to deduct up to $10,000 in interest on a new auto loan. This temporary deduction is designed to help working families offset rising vehicle costs. But qualifying for it is not as simple as buying any vehicle with a loan.
To receive the deduction, you must follow strict rules—especially regarding the type of vehicle, the loan date, and where the car was assembled. Misunderstanding these requirements could cause the deduction to be denied or trigger refund delays.
This guide breaks down exactly which vehicles qualify and what you need to know before claiming the new auto loan interest deduction on your 2025 tax return (filed in 2026).
What Is the New Auto Loan Interest Deduction?
Beginning in tax year 2025, eligible taxpayers may deduct up to:
$10,000 of interest paid on a qualifying new vehicle loan
This is a significant benefit because:
- It applies even if you take the standard deduction
- It operates separately from itemized deductions
- It directly reduces taxable income, increasing your refund
- It is available to a large portion of middle-income households
But only certain vehicles qualify.
The Vehicle Must Be Brand New (Not Used)
To claim the deduction, the vehicle must meet the IRS definition of new:
- First sale to the consumer
- No prior owner
- Not previously titled or registered
- Not a dealer demo or loaner vehicle
Used cars do not qualify—even if barely driven or certified pre-owned.
The Vehicle Must Be Assembled in the United States
This is one of the most important and most misunderstood rules.
To qualify:
The car must be assembled in the United States.
This requirement applies regardless of:
- Brand
- Model year
- Manufacturer
- Where parts were produced
What matters is final assembly location, which the IRS will verify using data from manufacturers and VIN numbers.
Examples of vehicles likely to qualify:
- Domestic trucks
- U.S.-assembled sedans
- U.S.-assembled SUVs
- Many EVs assembled in U.S. factories
Examples of vehicles unlikely to qualify:
- Vehicles imported fully assembled
- Models produced entirely overseas
- Gray-market vehicles
Because many foreign-brand vehicles are assembled in the U.S., make sure not to assume—check the label or VIN.
How to Verify Your Vehicle’s Assembly Location
To avoid refund problems, verify the assembly location before claiming the deduction.
Look for:
1. The Monroney window sticker
This sticker must list the final assembly point.
2. The first character of the VIN
- “1”, “4”, or “5” = U.S.-assembled
- “2” = Canada
- “3” = Mexico
- Letters often indicate overseas factories
3. Manufacturer’s website
Most automakers publish factory locations by model.
4. IRS-published qualifying vehicle list
Expected to be released annually.
If your vehicle is not U.S.-assembled, it will not qualify—even if it is new.
The Loan Must Be for a Qualifying Purchase
Your financing must meet all of the following:
- Loan originated in 2025
- Loan is for the purchase of a new qualifying vehicle
- You are the primary borrower
- Interest must be paid during the tax year
- Vehicle must be used primarily for personal use (not business)
Leases do not qualify.
Balloon or refinance loans also do not qualify.
Income Phase-Out Rules
The deduction is designed for middle-income households. It begins to phase out at certain Modified Adjusted Gross Income (MAGI) thresholds.
While final IRS numbers may adjust slightly, phase-outs will generally hit:
- Higher-middle income households
- Couples with large investment gains
- Taxpayers with high MAGI due to retirement distributions or bonuses
Taxpayers with modest or moderate income will qualify for the full deduction.
Documentation You Must Keep
To protect your deduction during any refund review, keep:
- Sales agreement showing new-vehicle status
- Loan contract with interest terms
- Full VIN number
- Proof of assembly location (window sticker or manufacturer data)
- Year-end interest statement from the lender
- Payment history
- Vehicle registration
Missing documentation is a common cause of refunds being held under TC 570.
How the Deduction Impacts Your Refund
This deduction works similarly to other “above-the-line” adjustments:
- It reduces taxable income
- It increases your refund amount
- It benefits taxpayers whether or not they itemize
- It stacks with other OBBB deductions such as tips, overtime, and senior credits
Example:
If you paid $7,000 in car loan interest on a qualifying U.S.-assembled vehicle, the full $7,000 may be deducted—meaning you only pay tax on income after that adjustment.
Vehicles That Typically Qualify (General Guidance)
While an official IRS list will be released annually, vehicles that generally meet requirements include:
- Most Ford, GM, and Stellantis vehicles
- Many Honda and Toyota models assembled in U.S. plants
- U.S.-built EVs from various manufacturers
- Domestic trucks and SUVs assembled in Michigan, Texas, Kentucky, Tennessee, and Ohio
Vehicles unlikely to qualify:
- Fully imported foreign models
- EVs assembled overseas
- Niche luxury imports
- Canadian- or Mexican-assembled vehicles
Always verify the VIN.
The new $10,000 auto loan interest deduction is one of the most valuable short-term tax benefits available for 2025 filers. But it comes with strict requirements:
- The vehicle must be brand new
- It must be assembled in the United States
- The loan must originate in 2025
- The taxpayer must meet MAGI limits
- All documentation must be retained
Before claiming the deduction, verify your vehicle meets every rule. Claiming a non-qualifying vehicle may trigger a refund delay or IRS review.
