Nationwide IRS notice: How a new $10K tax deduction could lower your 2026 tax bill

Tax filing season 2026 has officially kicked off, and with it, a number of new policy changes affecting the way taxes are handled.

One major provision filers should know about is the a new “No Tax on Car Loan Interest” provision under the One, Big, Beautiful Bill that allows certain individuals to deduct interest paid on a qualifying vehicle loan, up to $10,000 annually.

This new deduction applies to 2025 through 2028 federal income tax returns.

To qualify for the deduction, the interest must be paid on a loan used to purchase a passenger vehicle for personal use that meets all eligibility requirements.

Lease payments do not qualify and the maximum annual amount a taxpayer can claim for this deduction is $10,000.

The deduction also doesn’t apply equally to everyone.

It begins to phase out when a taxpayer’s modified adjusted gross income exceeds $100,000 for individuals or $200,000 for married couples filing jointly, meaning fewer high-income filers will benefit.

To count as “qualified interest,” the loan must:

• Must have originated after Dec. 31, 2024
• Be secured by the vehicle purchased
• Be used to buy a vehicle the original use of which began with the taxpayer (so used cars don’t qualify)
• Be for a vehicle intended for personal (not business) use

Additionally, the policy only covers new, American-made cars — meaning the vehicle’s final assembly must be in the U.S.

The IRS also advises that when filing for this deduction, taxpayers should ensure their bank properly reports interest so they can claim the deduction correctly.

The IRS describes this as an “above-the-line” deduction, meaning it reduces adjusted gross income and is available whether a taxpayer itemizes deductions or claims the standard deduction.

The new deduction applies for tax years beginning after Dec. 31, 2024, and will remain in effect through the 2028 filing season unless extended by Congress.