Current Tax Updates Car Owners Need to Know About in 2026

You may have the option to deduct up to $10,000 in interest on new car loans through 2028, among the changes.

Elliot Rieth | 

Apr 3, 2026 | 3 min read

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Recent changes to United States tax rules provide car loan interest relief if you bought a new car with a lien in the last year or plan to soon. Also, the rule changes eliminate tax breaks for electric vehicles (EVs). 

Of course, certain criteria must be met. We explain the updates you need to know about this tax season and how they may affect the way you file this year.

• The new 'no tax on car loan interest’ deduction
  
• Can I deduct interest on a used car?
  
• Electric vehicle (EV) incentives: What’s left?
  

The New ‘No Tax on Car Loan Interest’ Deduction

Car owners can now deduct up to $10,000 per year of interest on qualifying car loans from purchases made on or after January 1, 2025. The tax break is good through the end of 2028.

To claim the "No Tax on Car Loan Interest" IRS deduction on your taxes this year, your adjusted gross income must be less than $100,000, or $200,000 if filing jointly.

Other criteria include:

• Applies to the new car purchases
• Does not apply to used car purchases
• Does not apply to car lease payments.
• Deduction is for personal-use vehicles
• Purchase must be secured by a car loan
• For vehicles with “final assembly" in the United States
• Vehicle must weigh less than 14,000 pounds

Before the tax change, car owners were unable to deduct the interest they paid on their personal vehicle car loans. To get the deduction, include your vehicle identification number (VIN) for the new vehicle when filing your tax return.  

Can I Deduct Interest on a Used Car?

The car loan interest deduction does not include used car loans. Only interest payments on new vehicles may qualify for the tax break.

Electric Vehicle Tax Credits and Incentives: What’s Left?

The EV tax credit expired on September 30, 2025, and qualifying vehicles purchased after that date no longer qualify for the break. Drivers who purchased an EV before September 30, 2025, can file for applicable EV tax credits of up to $7,500 on qualifying new vehicles and up to $4,000 on qualifying used vehicles if they did not obtain the instant tax rebate at the dealership. Other criteria must be met, including certain income levels, purchase price, and the EV must meet critical mineral and battery requirements.

Additionally, incentives for EV home chargers may still exist. If you install a home charging station, you may be eligible for a 30% tax credit on the cost of a quality charging station, parts, and labor, up to $1,000, if you meet certain criteria. 

State-level EV incentives may still exist. For example, EV owners of qualifying new or leased vehicles purchased in Colorado in 2025 may claim up to $3,500. While reduced in 2026, it’s possible to obtain a $750 tax credit. It’s also possible to obtain other credits in Colorado on EVs, including those with a Manufacturer’s Suggested Retail Price below $35,000. 

It’s best to research the state where you purchased the EV to determine the rules and if you qualify. 

Please note, tax laws can change, and individual circumstances can vary.

Elliot Rieth

Born and raised in Michigan — the center of the American automotive industry — Elliot's fate of becoming a writer in the automotive space was seemingly predetermined. In addition to covering cars and personal finance for Capital One, he's worked directly with dealers and OEMs to create digital content meant to educate consumers. He's also passionate about music and has written for outlets like In Review Online. When he isn't writing about the latest financial, automotive, and insurance trends, he can be found enjoying a new book or record alongside his two greyhounds.