Tax guides
Car Loan Interest Deduction for the Self-Employed: Schedule C + the New $10K Rule
Quick answer: If you're self-employed, car loan interest is deductible in two separate pieces. The business-use share goes on Schedule C (and yes, you can claim it even on top of the standard mileage rate). The personal-use share can qualify for the new $10,000 OBBBA deduction on Schedule 1-A — if the car is new and finally assembled in the USA. One rule: never deduct the same interest dollar twice.
Piece 1: the business share on Schedule C
This rule predates OBBBA. If you drive your own car for your business — freelancing, rideshare, contracting, real estate — the share of your loan interest matching your business-use percentage is a business expense on Schedule C. Drive 20,000 miles total, 14,000 for business (70%), and 70% of your interest is deductible as a business cost.
The part most people miss: you can add this on top of the standard mileage rate. The mileage rate is a simplified bundle of fuel, wear, and depreciation — interest stays claimable as its own line. Under the actual-expense method, interest is simply one of the bundled costs instead.
Piece 2: the personal share on Schedule 1-A
The new deduction (IRC §163(h)(4), tax years 2025–2028) covers personal-use vehicles: up to $10,000/year of interest, claimed on Schedule 1-A, Part IV, no itemizing needed. For a mixed-use car, only the personal-use share of interest counts — and the car must clear all four rules (new, US final assembly, personal use expected >50% at purchase, loan after 12/31/2024). Run your VIN to check the assembly rule — it's the one that fails most cars.
Worked example: one car, both deductions
- Total interest paid in 2026: $5,000
- Mileage log: 60% business / 40% personal
- Schedule C (business): 60% × $5,000 = $3,000 business expense
- Schedule 1-A (personal): 40% × $5,000 = $2,000 toward the $10,000 cap (vehicle must qualify)
- Total deducted: $5,000 — every dollar once, in the right place
Estimate your personal-share deduction with our free calculator — enter your personal share of interest as the loan interest figure.
The double-dip trap
Claiming 100% of your interest on Schedule C and the full amount again on Schedule 1-A is the fastest route to an IRS notice. The two deductions split one pool of interest — business share and personal share must add up to what you actually paid, no more.
Common questions
Can a self-employed person deduct car loan interest?
Yes — two ways. The business-use percentage of your car loan interest is deductible on Schedule C as a business expense. Separately, the new OBBBA deduction (up to $10,000/year, 2025–2028) can cover the personal-use share if the vehicle and loan qualify. You cannot deduct the same dollar of interest twice.
Can I deduct car loan interest if I use the standard mileage rate?
Yes. This surprises many people: even when you claim the standard mileage rate for business driving, you may still deduct the business-use portion of your car loan interest on top of it. The standard mileage rate doesn't include interest as a separate line — it's one of the few add-ons allowed.
How do I split interest between business and personal use?
Keep a mileage log for the year. Business-use percentage = business miles ÷ total miles. Apply that percentage to your total interest paid for the Schedule C portion; the remainder is your personal share for the Schedule 1-A deduction (if the vehicle qualifies).
Does the new $10,000 deduction require the car to be US-assembled if I'm self-employed?
For the Schedule 1-A (personal) portion, yes — the vehicle must be new and finally assembled in the USA. The Schedule C business-expense rules are older and separate: they don't have a US-assembly requirement, but they only cover the business-use share.
What records do I need?
A contemporaneous mileage log (business vs personal miles), your loan statements showing total interest paid (Form 1098-VLI for 2026+), and the VIN. The IRS expects the mileage log to exist before you file, not reconstructed after an audit letter.
Disclaimer: Estimates only — not tax advice. Tax rules are complex and change. Confirm your situation with a qualified CPA or tax professional before filing.
Estimates only — not tax advice. Tax rules are complex and change. Confirm your situation with a qualified CPA or tax professional before filing.