The car loan interest deduction (section 163(h)(4)) is the most qualification-heavy of the new deductions. The interest only counts when all five tests pass, and two of them are the opposite of what most buyers assume.
The five tests
New vehicle. The car must be new. A used car never qualifies, however it is financed.
US final assembly. The vehicle’s final assembly must have happened in the United States. Brand does not decide this: some models from US brands are assembled in Mexico or Canada, and some foreign brands assemble in the US. The assembly guide shows the two reliable checks.
Loan originated after December 31, 2024. A loan from before 2025 does not qualify, and refinancing does not cure an old loan’s date unless the new loan itself meets the rules.
A real loan, secured by a first lien. Lease payments never qualify. The loan must be secured by the vehicle.
Personal use. The vehicle must be for personal use; interest already deducted as a business expense on Schedule C, E or F is subtracted before this deduction is worked out.
The numbers
Interest counts up to $10,000 a year. The phase-out starts at $100,000 of MAGI ($200,000 joint) and removes $200 for every $1,000 or part of $1,000 over, the only round-up phase-out among the new deductions, so the deduction is gone at $150,000 ($250,000 joint). Unlike tips and overtime, married filing separately can claim it, using the $100,000 threshold. The vehicle identification number goes on the return, and from 2026 your lender reports the interest on the new reporting statement. Run the qualification and the maths together in the car loan checker.
For the side-by-side table of every cap and threshold, see the caps and phase-outs reference.