Can I Write Off Interest on a Car Loan?

Interest paid on a car loan is not deductible for personal use vehicles. The tax code categorizes personal car loan interest as non-deductible personal interest.

However, a temporary exception exists for personal use vehicles purchased after December 31, 2024, and before January 1, 2029. Individuals may deduct interest paid on a loan used to purchase a qualified vehicle that meets eligibility criteria, such as having its final assembly point in the United States. The maximum annual deduction is $10,000, phasing out for taxpayers with modified adjusted gross income over $100,000 ($200,000 for joint filers). The vehicle’s VIN must be included on the tax return when claiming this deduction.

Business Use Deduction

Car loan interest can be a deductible expense when the vehicle is used for business purposes. This deduction is directly tied to the percentage of time the vehicle is used for business activities. For example, if a car is used 60% for business, then 60% of the car loan interest may be deductible.

There are two main methods to deduct vehicle expenses: the standard mileage rate and the actual expense method. The standard mileage rate is 70 cents per mile for 2025. This method is simpler, but car loan interest is not separately deductible under the standard mileage rate; it is included in the rate.

The actual expense method allows for the deduction of costs associated with owning and operating a vehicle for business. This includes expenses such as fuel, oil changes, tires, repairs, insurance premiums, registration fees, and depreciation. Under this method, the business portion of car loan interest is specifically deductible. You calculate your business use percentage by dividing your business miles by your total miles driven for the year.

Record-keeping is important to substantiate vehicle expense deductions, especially under the actual expense method. An IRS-compliant mileage log should include the date, destination, business purpose, starting and ending odometer readings, and total mileage for each business trip. These records should be kept contemporaneously.

Self-employed individuals report their business vehicle expenses on Schedule C (Form 1040). On Schedule C, line 9 is designated for car and truck expenses. When using the actual expense method, car loan interest is reported along with other actual vehicle expenses.

Investment Activity Deduction

Car loan interest may be deductible in specific situations where the vehicle is used to generate taxable investment income. This involves travel directly related to managing investments or producing investment income. Examples include driving to a rental property you own to manage it, traveling to a brokerage firm for investment-related meetings, or attending seminars focused on investment strategies.

This deduction does not apply to commuting to a regular job or for general personal errands, as those are not considered investment activities. The interest must be directly attributable to the debt incurred for the investment activity. The deduction for investment interest is claimed as an itemized deduction on Schedule A (Form 1040).

The amount of investment interest expense that can be deducted is limited to your net investment income for the tax year. Any disallowed investment interest can be carried forward to future tax years. Substantiation of investment-related travel and expenses is necessary, similar to business use.

Vehicle as a Qualified Residence

Interest on a loan used to purchase a recreational vehicle (RV) or a boat can be deductible if the vehicle qualifies as a “qualified residence.” This is a distinct scenario from business or investment use. To be considered a qualified residence by the IRS, the RV or boat must have sleeping, cooking, and toilet facilities.

This rule allows the interest paid on the loan for such a vehicle to be treated similarly to home mortgage interest. The RV or boat can be either your main home or a second home, provided it meets the facility requirements. The loan must be secured by the RV or boat itself for the interest to be deductible.

This deduction is claimed as qualified residence interest on Schedule A (Form 1040). This applies only to the interest on the loan used to acquire the qualified residence, not to other expenses like maintenance or repairs. A home can include mobile homes, house trailers, and boats.