Vehicle Loan Interest Deduction: What Taxpayers Need to Know

With recent changes to the tax rules, many taxpayers have questions about the vehicle loan interest deduction. While this deduction can be valuable in the right situation, it comes with specific requirements and limitations. Below, we break down the key points you should understand before assuming this interest will reduce your tax bill.

How Vehicle Loan Interest Is Reported

One of the biggest questions surrounding this deduction is how taxpayers will receive information about the interest they paid.

For interest paid in 2025: IRS Notice 2025-57 instructs financial institutions to report applicable vehicle loan interest to borrowers by January 31, 2026. There is no required IRS form for 2025 reporting. Lenders may provide this information through:

• An online account portal

• Monthly loan statements

• An annual statement

• Another reasonable reporting method

Starting in 2026 and beyond: Financial institutions will report vehicle loan interest using Form 1098-VLI (Vehicle Loan Interest). This will function similarly to how mortgage interest is reported on Form 1098.

Standard Deduction vs. Itemized Deductions

This is where many taxpayers are surprised.

Vehicle loan interest is an itemized deduction, not an above-the-line deduction. That means it only provides a tax benefit if your total itemized deductions exceed the standard deduction.

For many taxpayers, the standard deduction is still the better option, because they do not have enough combined deductions to exceed it. Itemized deductions typically include:

• Mortgage interest

• State and local taxes, including real estate taxes (subject to limits)

• Charitable donations

• Certain other qualifying expenses

If these combined deductions, including vehicle loan interest, do not exceed the standard deduction, then the vehicle loan interest will not reduce taxable income. We strongly recommend running the numbers before assuming this deduction will apply.

Qualifying Vehicles: Final Assembly Matters

Not all vehicles qualify for the vehicle loan interest deduction.

One key requirement is that the vehicle’s final assembly must take place in the United States. This rule is different from the Clean Vehicle Credit, which required final assembly in North America. For this deduction, the requirement is stricter.

How to Determine Where Final Assembly Occurred

There are several reliable ways to confirm where a vehicle was finally assembled:

• Ask the dealer. Dealers are typically aware of this information, especially since deductibility can be a selling point.

• Check the window sticker. Federal regulations require final assembly information to be displayed.

• Review the Vehicle Identification Number (VIN).

  • The first character of the VIN identifies the country of final assembly.

  • The VIN can be found on the window sticker, vehicle title, embedded in the dashboard near the windshield on the driver’s side, and on a sticker inside the driver’s door jamb.

According to Autotrader.com, VINs beginning with the following indicate final assembly in the United States:

• 1

• 4

• 5

• 7F–7Z

• 70

Other examples include:

• 2 for Canada

• K for South Korea

Even if parts of the vehicle were manufactured elsewhere, the first VIN character reflects where final assembly occurred.

The Bottom Line

The vehicle loan interest deduction can be helpful, but it is not a guaranteed tax benefit for everyone. Between itemized deduction thresholds and vehicle qualification rules, many taxpayers may find that the standard deduction still provides the greatest tax advantage.

If you are considering this deduction or recently purchased a vehicle, we recommend reviewing your full tax picture before making assumptions.

If you have questions about whether vehicle loan interest applies to your situation, the team at Kamish and Associates is happy to help you evaluate your options and plan accordingly.applies to your situation, Kamish and Associates is here to help. We’re happy to walk through the details and make sure you’re taking advantage of every deduction available to you.