Key takeaways
What this article covers, in order:
- The new car loan interest deduction (2025 to 2028)
- Business use: standard mileage or actual costs
- Registration fees: only the value-based part
- Sales tax on a car purchase
- Clean vehicle credits ended in 2025
- Worked example: one truck, two kinds of use
Buying a car is not deductible in itself, but a vehicle can produce several separate tax breaks. For 2025 through 2028 you can deduct up to $10,000 a year of interest on a loan for a new, US-assembled vehicle you use personally, whether or not you itemize. If you use the vehicle in your own business, you can deduct business miles at 70 cents a mile for 2025, or actual costs. And if you itemize, the value-based part of your registration fee and, in some cases, the sales tax you paid can count as deductible taxes.
Each break has its own rules and its own line on the return. This guide takes them one at a time and then puts them together for a self-employed owner who uses one truck for work and family.
The new car loan interest deduction (2025 to 2028)
The One Big Beautiful Bill Act added a deduction for qualified passenger vehicle loan interest. It is claimed on the new Schedule 1-A and reduces taxable income even if you take the standard deduction. The conditions:
- Loan date: the loan must have been taken out after 31 December 2024. Interest on older personal car loans stays non-deductible.
- New vehicle: its original use must begin with you. Used vehicles do not qualify.
- US final assembly: the vehicle's final assembly must have taken place in the United States. The vehicle label or a VIN check will show this.
- Type and weight: a car, minivan, van, SUV, pickup or motorcycle with a gross vehicle weight of less than 14,000 pounds.
- Personal use and a first lien: the loan must be used to buy the vehicle for personal use and be secured by a first lien on it. Under the IRS regulations, personal use means you expect, when the loan is taken out, that more than 50% of the vehicle's use will be personal. Lease payments do not qualify either.
- VIN on the return: you must report the vehicle identification number on Schedule 1-A.
- Cap and phase-out: up to $10,000 per return. The deductible amount, after the $10,000 cap, is reduced by $200 for every $1,000, or part of $1,000, by which modified AGI exceeds $100,000 ($200,000 for married filing jointly).
Interest you already deduct on Schedule C, E or F is excluded from Schedule 1-A, so the same dollar cannot be deducted twice. For 2025, the IRS gave some lenders transition relief on reporting this interest, so check your year-end loan statement for the interest actually paid.
Business use: standard mileage or actual costs
If you are self-employed, the business share of a vehicle is a Schedule C expense. Employees cannot deduct unreimbursed driving for their job. Driving between home and your main workplace is commuting and is never deductible.
Standard mileage rates
- 2025: 70 cents per business mile.
- 2026, 1 January to 30 June: 72.5 cents per mile.
- 2026, 1 July to 31 December: 76 cents per mile, raised mid-year by the IRS because of higher fuel prices.
For a car you own, you must choose the standard mileage rate in the first year the car is used in your business; you can switch to actual costs later. You cannot use it if you run five or more vehicles at the same time. On top of the mileage rate, you can still deduct business parking and tolls, and as a self-employed person the business share of your car loan interest.
Actual costs
The alternative is to add up gas, insurance, repairs, tyres, registration fees, licences, lease payments or depreciation, then multiply by your business-use percentage. For depreciation, a vehicle used more than 50% for business can qualify for Section 179 expensing or bonus depreciation; at 50% or less you are limited to straight-line depreciation. Passenger automobiles placed in service in 2025 face a first-year depreciation cap of $20,200 when bonus depreciation is taken, or $12,200 without it. The Section 179 amount for a heavy SUV is capped at $31,300 for 2025 and $32,000 for 2026.
Registration fees: only the value-based part
A registration fee is deductible as a personal property tax only if it is based on the vehicle's value and charged annually. Flat fees, weight-based fees and plate charges do not count. Many renewal notices list the components separately; only the value-based line goes on Schedule A, and only if you itemize. For a vehicle used in your business under the actual-cost method, the business share of the whole registration fee is a business expense instead.
Deductible state and local taxes, including that personal property tax, are capped at $40,000 for 2025 and $40,400 for 2026 (half if married filing separately), reduced for higher incomes but not below $10,000.
Sales tax on a car purchase
If you itemize, you can choose to deduct state and local general sales taxes instead of state and local income taxes, by checking box 5a on Schedule A. This mostly helps people in states without an income tax, or anyone who made a large purchase such as a car in that year. You can use actual receipts or the IRS sales tax tables plus the tax on the car. It counts toward the same SALT cap.
Clean vehicle credits ended in 2025
The new and used clean vehicle credits are not allowed for vehicles acquired after 30 September 2025. If you bought an electric vehicle in late 2025 or 2026, plan on the loan interest deduction, if the car qualifies, rather than a credit.
Worked example: one truck, two kinds of use
Luis is a self-employed electrician who files as single. In March 2025 he bought a new pickup assembled in the United States, financing it with a loan secured by the truck. He bought it mainly as the family vehicle and expected most of its use to be personal, which matters because the IRS rules require that, when the loan is taken out, the vehicle is expected to be used more than 50% for personal purposes. In 2025 he drove it 15,000 miles, of which 6,000 were business trips to job sites, so business use is 40%. He paid $2,600 of loan interest during the year, and his modified AGI was $104,200. He chose the standard mileage rate.
- Mileage deduction: 6,000 × 70 cents = $4,200 on Schedule C.
- Business share of interest: 40% × $2,600 = $1,040, also on Schedule C.
- Personal share of interest: $2,600 − $1,040 = $1,560, entered in column (iii) of Schedule 1-A.
- Phase-out: MAGI is $4,200 over $100,000. Divide by $1,000 and round up: 4.2 becomes 5. Reduction: 5 × $200 = $1,000.
- Car loan interest deduction: $1,560 − $1,000 = $560.
- Registration: suppose his renewal notice shows $195, of which $120 is a value-based tax. If he itemizes, $120 × 60% personal share = $72 counts as personal property tax on Schedule A. He takes the standard deduction, so it does not help him this year.
Had his MAGI been $99,000, the full $1,560 would have been deductible on Schedule 1-A. The phase-out bites fast: at $107,001 of MAGI the reduction reaches $1,600 and his personal-interest deduction is gone. And because business use is under 50%, if he ever switched to actual costs he would be limited to straight-line depreciation on the truck.
Common mistakes
- Claiming loan interest on a used car or a lease. Neither qualifies for Schedule 1-A.
- Leaving out the VIN. The deduction requires it.
- Deducting the business share twice. Interest on Schedule C must be excluded from Schedule 1-A.
- Counting commuting as business miles. Home to your regular workplace is personal.
- No mileage log. Business mileage claims need a record of dates, destinations, business purpose and miles, kept at or near the time of the trip.
- Deducting the whole registration fee. Only the value-based annual part is a deductible tax.
- Choosing actual costs and depreciation in year one without thinking ahead. That can rule out the standard mileage rate for the life of that vehicle.
hellobooks< / a > -helps">How HelloBooks helps
Vehicle deductions depend on records that are tedious to keep by hand. HelloBooks includes a mileage tracker that builds an IRS-compliant log of each trip's date, purpose and distance. Fuel, repair and registration receipts can be snapped as expense claims, with receipt OCR filling in the vendor and amount. If you use actual costs, the fixed assets register tracks the truck's depreciation, and a journal entry can split loan interest between the business and personal share. Your CPA or tax software still completes Schedule 1-A and Schedule C; HelloBooks gives them clean numbers to start from.
General information as of November 2026, not tax or legal advice. Vehicle rules have more conditions than fit here; check IRS Publication 463, the Schedule 1-A instructions or a qualified CPA before you file.
