What Is the Vehicle Loan Interest Deduction?
Beginning with loans incurred after 2024, eligible taxpayers may be able to deduct qualifying interest paid on certain vehicle loans used to purchase eligible passenger vehicles. The deduction is claimed on the federal income tax return and may reduce taxable income.
Lenders that receive qualifying vehicle loan interest may issue Form 1098-VLI, Vehicle Loan Interest Statement, reporting the amount of interest received during the year.
Who May Qualify?
You may qualify for the deduction if:
- The loan was incurred after December 31, 2024.
- The loan was used to purchase an eligible passenger vehicle for personal use.
- The loan is secured by a first lien on the vehicle.
- The vehicle qualifies as an applicable passenger vehicle under IRS rules.
- Final assembly of the vehicle occurred within the United States.
Your deduction may be reduced or limited based on income and other requirements.
What Vehicles Qualify?
An eligible vehicle generally must:
- Be a car, minivan, van, SUV, pickup truck, or motorcycle.
- Have a gross vehicle weight rating under 14,000 pounds.
- Be manufactured primarily for use on public roads and highways.
- Have original use begin with the purchaser.
- Have final assembly completed within the United States.
What Interest Qualifies?
Interest generally qualifies if it is paid on a Specified Passenger Vehicle Loan (SPVL). An SPVL is a loan:
- Incurred after 2024;
- Used to purchase an applicable passenger vehicle for personal use; and
- Secured by a first lien on the vehicle.
Qualifying financing may include interest attributable to certain costs commonly financed with a vehicle purchase, such as:
- Vehicle service contracts
- Warranties or extended warranties
- GAP coverage
- Title and registration fees
- Certain vehicle-related accessories purchased as part of the transaction
Interest attributable to nonqualifying items generally does not qualify. Examples include:
- Negative equity from a trade-in vehicle
- Cash received from the lender
- Property unrelated to the vehicle purchase, such as trailers or boats
Refinanced Vehicle Loans
A refinanced vehicle loan may continue to qualify if:
- The refinancing is secured by a first lien on the same qualifying vehicle; and
- The qualifying loan amount does not exceed the outstanding balance of the original qualifying loan at the refinancing date.
How to Verify Final Assembly in the United States
To determine whether final assembly occurred in the United States, you may:
- Use the National Highway Traffic Safety Administration VIN Decoder, or
- Review the final assembly information shown on the vehicle's manufacturer label.
Do not rely solely on the first digit of the VIN when determining eligibility.
Will I Receive Form 1098-VLI?
A lender that receives $600 or more of vehicle loan interest on a qualifying loan during the year generally must furnish Form 1098-VLI to the payer of record and report the information to the IRS.
Form 1098-VLI reports:
- Vehicle loan interest received by the lender
- Vehicle year, make, model, and VIN
- Loan origination date
- Outstanding principal balance
- Whether original use began with the purchaser
- Whether final assembly occurred within the United States
Program Entry
To enter the Vehicle Loan Interest Deduction:
- Federal
- Deductions (Select My Forms)
- Additional Deductions
- Vehicle Loan Interest Deduction (Form 1098-VLI)
Important Information
The amount shown on Form 1098-VLI may not be fully deductible. The allowable deduction may be limited based on your income, the amount of interest paid, and whether the vehicle and loan meet all IRS requirements.
For the latest guidance, see Form 1098-VLI and the accompanying IRS instructions.