Does Your Car Qualify for the $10,000 Interest Deduction?
The old $7,500 EV credit is gone. The new OBBBA deduction lets you write off up to $10,000/year in car loan interest — but only for US-assembled vehicles. Enter your VIN to check.
The New Car Loan Interest Deduction: Credit vs. Deduction
The OBBBA replaced the old $7,500 EV tax credit (which expired September 30, 2025) with a broader $10,000 annual interest deduction for qualifying auto loans. The key difference: the old benefit was a credit (dollar-for-dollar tax reduction) limited to EVs. The new benefit is a deduction (reduces taxable income) available for any new US-assembled vehicle — gas, hybrid, or electric.
This means the actual tax savings depend on your marginal tax bracket. A $5,000 deduction saves $1,100 for someone in the 22% bracket, but only $600 for someone in the 12% bracket. The old $7,500 credit was worth exactly $7,500 regardless of bracket.
The VIN Test: How to Know If Your Car Qualifies
The vehicle must have final assembly in the United States. The fastest way to check: look at the first character of your VIN (Vehicle Identification Number). VINs starting with 1, 4, or 5 indicate US assembly. VIN starting with 2 = Canada, 3 = Mexico, J = Japan, W = Germany, K = South Korea — none of these qualify.
Important: the brand does not determine eligibility. A Toyota Camry assembled in Georgetown, Kentucky (VIN starts with 4) qualifies. A Ford Maverick assembled in Hermosillo, Mexico (VIN starts with 3) does not. Always check the VIN, not the brand name.
You can verify assembly location through the NHTSA VIN Decoder (nhtsa.gov) or by checking the "Final Assembly Point" on the vehicle's window sticker (Monroney sticker) at the dealership.
Income Phase-Out Rules
The deduction phases out for higher earners. For single filers, it begins reducing at $100,000 MAGI and is fully eliminated at $150,000. For married filing jointly, phase-out begins at $200,000 and ends at $250,000. The reduction is $200 for every $1,000 over the threshold. A single filer earning $125,000 loses 50% of the deduction.
How Much Interest Do Car Buyers Actually Pay?
The average new car price in 2026 is approximately $48,000. At a 6.5% interest rate on a 60-month loan, you pay roughly $3,100 in interest in year one, declining each year. Most buyers will not reach the $10,000 cap unless they purchased a luxury vehicle with a higher interest rate. The deduction is most valuable for buyers financing $40,000+ at rates above 7%.
How to Claim the Deduction
Report the deduction on Schedule 1-A, Part IV of your federal tax return. You will need your VIN (17 characters) and the total interest paid during the tax year (provided by your lender on Form 1098-VLI or a year-end statement). The deduction is above-the-line — you can claim it whether you take the standard deduction or itemize. It applies to tax years 2025 through 2028.
According to the Bipartisan Policy Center, of the 25 most popular new cars sold in the US, only about 57% had final assembly in the United States. A Toyota Camry (Kentucky) qualifies, but a Ford Maverick (Mexico) does not. Always check the VIN — the brand name is irrelevant for this deduction.
