Can You Write Off Auto Loan Interest?

The ability to deduct auto loan interest on your taxes is a common question for many individuals. The rules governing these deductions are nuanced and depend heavily on how the vehicle is used. Understanding these specific conditions is important for anyone considering whether they can reduce their taxable income. This guide will clarify when such deductions are permissible and how to properly claim them.

Understanding Personal Use Auto Loan Interest

Interest paid on a loan for a vehicle used solely for personal transportation is generally not tax-deductible. This applies to vehicles used for daily commuting, running errands, or family outings. The Internal Revenue Service (IRS) classifies this as personal interest, which is generally not allowed as a deduction against income.

Unlike certain other types of interest, such as qualified home mortgage interest or student loan interest, there are no specific tax provisions that allow for a deduction of personal auto loan interest. For most car owners, interest payments made on their personal vehicle loans do not offer a direct tax benefit. The primary purpose of the vehicle dictates its classification for tax purposes.

Situations Where Auto Loan Interest Is Deductible

While personal use auto loan interest is generally not deductible, specific circumstances allow for this deduction, primarily when the vehicle is used for business or income-generating activities. Only the portion of interest directly attributable to a qualified use is deductible.

Self-employed individuals and small business owners can deduct interest on a vehicle loan if used for business purposes, such as client visits or transporting goods. If a vehicle is used entirely for business, 100% of the auto loan interest can be written off. For vehicles used for both personal and business reasons, only the business-use portion of the interest is deductible.

Individuals working in the gig economy, such as rideshare drivers or food delivery personnel, may also deduct a portion of their auto loan interest. As self-employed individuals, their vehicle is a business asset, allowing them to deduct the business percentage of interest paid. This deduction is available even if they choose the standard mileage rate for other vehicle expenses.

A vehicle used for managing rental properties or other investment activities can also qualify for an interest deduction. For example, if a landlord uses their vehicle for maintenance, tenant showings, or other management tasks, the interest proportional to this business use can be deducted. The deduction begins only when the borrowed funds are actually spent on the business or income-producing activity.

A temporary deduction for personal use auto loan interest is available for new loans originated after December 31, 2024, and before 2029, under the “One Big Beautiful Bill Act.” This deduction has a maximum annual limit of $10,000 and phases out for taxpayers with modified adjusted gross income exceeding $100,000 for single filers or $200,000 for joint filers. To qualify, the vehicle must have a gross vehicle weight rating of less than 14,000 pounds, be purchased new, and have undergone final assembly in the United States.

How to Calculate and Claim the Deduction

Calculating the deductible portion of auto loan interest for a vehicle used for both business and personal purposes requires determining the business-use percentage. This is typically done by dividing total business miles driven by total miles driven for the year. For instance, if a vehicle travels 20,000 miles annually, and 12,000 are for business, then 60% of the auto loan interest is deductible.

Accurate record-keeping is important for supporting vehicle expense deductions. Taxpayers must maintain detailed mileage logs documenting each business trip, including date, destination, purpose, and odometer readings. Logs can be kept manually, via spreadsheets, or with tracking applications. Records of auto loan interest statements from the lender are also necessary to verify total interest paid.

For self-employed individuals, vehicle expenses, including deductible auto loan interest, are typically claimed on Schedule C (Form 1040). Farmers use Schedule F (Form 1040). If the actual expense method is chosen, taxpayers list the business portion of expenses like gasoline, oil, repairs, insurance, and tires on Schedule C. Interest paid on the car loan is entered on line 16b of Schedule C.

Taxpayers have two primary methods for deducting vehicle expenses: the standard mileage rate or the actual expense method. The standard mileage rate is a set amount per business mile driven, which for 2025 is 70 cents per mile. While it covers most operating costs, the business portion of car loan interest can still be deducted separately. The actual expense method allows for the deduction of specific costs, including the business portion of auto loan interest, alongside other expenses like fuel, maintenance, and insurance. Compare both methods to determine which provides the larger deduction, as generally only one method can be used per vehicle.