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Tax guides

How to Claim the Car Loan Interest Deduction (Schedule 1-A, Step by Step)

Quick answer: To claim the car loan interest deduction, complete Schedule 1-A, Part IV and attach it to your Form 1040. You'll need your vehicle's VIN and your total qualified interest from Form 1098-VLI (sent by your lender). The deduction is capped at $10,000/year, phases out above $100,000 MAGI ($200,000 joint), and works whether or not you itemize.

The 6 steps to claim it

  1. 1Confirm your vehicle qualifies

    Your car must be new, finally assembled in the USA, for personal use, under 14,000 lbs, with a first-lien loan originated after 12/31/2024. Decode your VIN with the NHTSA database (our free VIN checker does this in 60 seconds) — do not guess from the brand name.

  2. 2Get your interest total (Form 1098-VLI)

    Starting with the 2026 tax year, your lender must send you Form 1098-VLI (Vehicle Loan Interest) by January 31 if you paid $600 or more in qualified interest. For 2025, use your lender's annual statement. Keep every statement regardless.

  3. 3Apply the income phase-out

    Compare your MAGI to the thresholds: $100,000 single / $200,000 joint. For every $1,000 (or fraction) above the threshold, reduce your deduction by $200. It disappears completely at $150,000 / $250,000.

  4. 4Complete Schedule 1-A, Part IV

    Part IV is labeled 'No Tax on Car Loan Interest.' Enter each vehicle's VIN (mandatory — no VIN, no deduction) and your allowable interest after the phase-out. Schedule 1-A has room for two VINs; the combined cap is $10,000 per return.

  5. 5Attach Schedule 1-A to Form 1040

    The total from Schedule 1-A flows to Form 1040 (line 13b on the 2025 form). You claim it whether you itemize or take the standard deduction.

  6. 6Fix your W-4 for next year

    Submit an updated W-4 to your employer (2026 form, Step 4(b)) and run the IRS Tax Withholding Estimator — now updated for the OBBBA deductions — so next year's savings arrive in your paychecks, not a refund.

Not sure your car passes the assembly test? Run the free VIN checker first, then estimate your exact deduction with the calculator.

The phase-out math, in one example

Single filer, MAGI $120,000, paid $6,000 of qualified interest. The excess over the $100,000 threshold is $20,000 = 20 units of $1,000. Reduction: 20 × $200 = $4,000. Deduction claimed: $6,000 − $4,000 = $2,000. At a 22% marginal rate, that's $440 back on the return.

Mistakes that cost people the deduction

  • Skipping the VIN — without it on Schedule 1-A, the deduction is denied, full stop.
  • Assuming the brand decides assembly — final assembly is per-vehicle. Check the model list or decode the VIN.
  • Claiming rolled-in negative equity — the September 2026 final regulations say interest on trade-in negative equity bundled into a new loan is not deductible.
  • Leases and used cars — neither qualifies, no exceptions.

Common questions

Where do I claim the car loan interest deduction on my tax return?

On Schedule 1-A, Part IV ('No Tax on Car Loan Interest'), attached to Form 1040. Enter your vehicle's VIN and the qualified interest amount. The Schedule 1-A total flows to Form 1040 line 13b (2025 form).

What is Form 1098-VLI?

Form 1098-VLI (Vehicle Loan Interest) is the new lender form created for this deduction. Starting with the 2026 tax year, lenders must send it by January 31 of the following year if you paid $600 or more in qualified vehicle loan interest.

Do I need my VIN to claim the deduction?

Yes. The VIN is mandatory on Schedule 1-A, Part IV. Under the law and final regulations, the interest is not deductible unless you report the VIN of the vehicle securing the loan.

Can I claim the deduction for two cars?

Yes, if both qualify — but the $10,000 cap is per return, not per car. Spouses filing jointly share one $10,000 cap; filing separately, each return gets its own $10,000 cap. Schedule 1-A has space for two VINs.

Is interest on a refinanced car loan still deductible?

Generally yes. If you refinance a qualifying loan, interest on the refinanced amount remains eligible — as long as the vehicle still qualifies and the loan stays secured by it. Note: under the September 2026 final regulations, interest attributable to negative equity rolled in from a trade-in is NOT deductible.

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.