Can You Deduct Car Loan Interest on a Business Vehicle? (w/Examples) + FAQs

This article reflects federal rules and general state-conformity rules as of June 2026 and covers tax year 2025 (the 2026 filing season). Tax law changes — confirm current figures with the IRS or your state tax agency before you file.

Quick Answer

Yes. For tax year 2025, you can deduct car loan interest on a business vehicle as a business expense, but only the share tied to business use. You claim it on Schedule C (or your business return), separate from the new personal-car interest deduction.

The Short Version, In Context

If you took out a loan to buy a vehicle you use for work, the interest on that loan is not stuck being a personal cost. The portion of the interest that matches your business use is a deductible business expense — and missing it means you overpay tax on income you never really kept. The catch is that the interest tracks your business-use percentage, so a car used half for work gives you only half the interest deduction.

There is a second, newer rule that confuses almost everyone. The 2025 law often called the “One Big Beautiful Bill Act” (OBBBA) created a brand-new deduction for personal-use car loan interest, capped at $10,000 per year for 2025 through 2028. That new break does not apply to the business-use part of your car — the business rule already covers that — so you need to know which bucket your interest falls into before you claim a dime. According to TurboTax’s OBBB guidance, the new personal deduction lets eligible buyers write off up to $10,000 of interest even without itemizing.

Here is what this guide gives you:

💼 How to deduct business car loan interest by business-use percentage, with the exact math.
🚗 Why the new OBBBA $10,000 personal deduction is separate — and how to avoid double-counting.
🧾 Which form and line you use for sole props, LLCs, S-corps, partnerships, and employees.
📉 How the standard mileage rate and actual-expense method change what interest you can claim.
⚠️ The 7+ mistakes that trigger lost deductions, denied write-offs, or an audit.

Two Different Deductions — Don’t Mix Them Up

The phrase “car loan interest” now points to two separate tax breaks, and they live in different parts of your return. Confusing them is the single most common error this filing season, because the new law got huge press while the old business rule stayed quiet.

The first is the business-use deduction. This rule is decades old. If you use a vehicle to earn business income, the interest on the loan is a business operating expense, just like fuel or repairs. You deduct it on your business return, prorated by how much you drive for business.

The second is the OBBBA personal-use deduction. This is new for tax year 2025 under the One Big Beautiful Bill Act provisions the IRS summarized in Fact Sheet 2025-03. It lets ordinary buyers deduct interest on a personal car loan, up to $10,000 a year, for 2025 through 2028. It exists because, until now, personal car loan interest was never deductible at all.

The line between them is the business-use percentage. The slice of interest that matches your business miles is a business deduction. The slice tied to personal driving is what the new OBBBA rule may cover — if you and the car qualify. You never deduct the same dollar of interest twice.

What the business rule actually is

The business interest deduction comes from the basic principle that ordinary and necessary costs of running a business are deductible under Internal Revenue Code Section 162. Loan interest on a vehicle used to produce business income fits squarely inside that rule. The consequence of ignoring it is direct: every dollar of business interest you fail to claim is a dollar of profit you pay tax on for no reason. A sole proprietor in the 22% bracket who skips $1,200 of business interest hands the IRS about $264 they did not owe. The fix is simple — track your business-use percentage and apply it to your annual interest paid.

What the OBBBA rule actually is

The OBBBA deduction is an “above-the-line” personal deduction, meaning you can take it even if you claim the standard deduction. The rules are strict, though. Per the IRS proposed regulations summarized by RSM, the vehicle generally must be new (first use starts with you), purchased after 2024, for personal use, and have final assembly in the United States. The consequence of assuming you qualify when you do not is an overstated deduction that the IRS can reverse, with interest and penalties. The fix is to confirm the vehicle’s assembly location and your income before claiming it.

Which Situation Applies To You?

The answer to “can I deduct my car loan interest?” depends entirely on how and why you drive. Find your row below, then read the section it points to.

You are self-employed (sole prop or single-member LLC) and use the car for business. The business-use share of your interest is deductible on Schedule C. The personal share may qualify for the OBBBA deduction. Read “Sole Proprietors and Single-Member LLCs.”
You own an S-corp or C-corp and the car is titled to the business. The corporation deducts the interest as a business expense on its own return. Read “S-Corps, C-Corps, and Partnerships.”
You own an S-corp but the car is titled to you personally. You generally cannot deduct it directly; you reimburse through an accountable plan. Read “S-Corps, C-Corps, and Partnerships.”
You are a W-2 employee using your own car for your job. You generally cannot deduct business car interest for 2025; that deduction is suspended through 2025. The OBBBA personal deduction may still apply. Read “Employees Who Use a Personal Car.”
You use the car only for personal driving. No business deduction exists, but the OBBBA $10,000 deduction may apply if you and the car qualify. Read “The New OBBBA Personal-Use Deduction.”

How To Calculate Business Car Loan Interest

The math has three steps, and it is the same whether you use the standard mileage rate or the actual-expense method. This is the part IRS Topic 510 confirms but never spells out with numbers.

First, total the loan interest you paid during the year. Your lender’s year-end statement or amortization schedule shows this figure. Second, find your business-use percentage by dividing business miles by total miles for the year. Third, multiply your total interest by that percentage. The result is your deductible business interest.

A key point that trips people up: even if you use the standard mileage rate (70 cents per mile for 2025), you can still deduct business loan interest on top of the mileage rate. The standard mileage rate covers gas, repairs, and depreciation — but not interest. As one tax community thread and most practitioners confirm, interest is added separately, still prorated by business use.

Worked example — the core math

Maria is a freelance photographer (sole proprietor). In 2025 she paid $2,800 in car loan interest. She drove 24,000 miles, of which 18,000 were for business. Her business-use percentage is 18,000 ÷ 24,000 = 75%. Her deductible business interest is $2,800 × 75% = $2,100. She enters that $2,100 on Schedule C. The remaining $700 is personal interest, which she may be able to deduct under the OBBBA rule if her car and income qualify. If Maria is in the 24% bracket and also owes self-employment tax, that $2,100 deduction saves her roughly $300–$500 in total tax.

Where To Claim It, By Entity Type

The form changes with your business structure, and using the wrong one is a common filing error.

Sole Proprietors and Single-Member LLCs

You report the business interest on Schedule C, Line 16, in the interest section, prorated by business use. A single-member LLC that has not elected corporate treatment files the same way — the IRS treats it as a “disregarded entity,” meaning it reports on your personal Schedule C. The consequence of misplacing the interest (for example, lumping it into “car and truck expenses” while also using the standard mileage rate) is either a double deduction the IRS will deny or a missed deduction you cannot recover after the deadline. The fix is to keep interest on Line 16 and mileage in the car-and-truck section.

S-Corps, C-Corps, and Partnerships

If the vehicle is titled to and the loan is in the name of the corporation or partnership, the entity deducts the interest on its own return — Form 1120 for a C-corp, Form 1120-S for an S-corp, or Form 1065 for a partnership. If the car is titled to the owner personally, the cleaner path is an “accountable plan” — a written reimbursement arrangement where the business pays you back for the business-use share and deducts that amount. The consequence of skipping the accountable plan is that reimbursements can become taxable wages to you. The fix is to adopt a written accountable plan before reimbursing.

Employees Who Use a Personal Car

For tax years 2018 through 2025, the Tax Cuts and Jobs Act suspended unreimbursed employee business expenses for most W-2 workers. That means a regular employee generally cannot deduct business car loan interest for 2025. The exceptions are narrow categories like Armed Forces reservists and qualified performing artists. The consequence of claiming it anyway is a denied deduction. The fix for employees is to ask your employer for an accountable-plan reimbursement, and to check whether the OBBBA personal deduction covers your interest.

The New OBBBA Personal-Use Deduction (2025–2028)

This is the headline tax break, and it is temporary. It applies to interest paid in tax years 2025 through 2028, and it expires after 2028 unless Congress extends it. Knowing the sunset matters if you are planning a multi-year car purchase around it.

The deduction is capped at $10,000 of interest per year. It phases out for higher earners: it begins shrinking once modified adjusted gross income (MAGI) tops $100,000 for single filers and $200,000 for joint filers, and it disappears entirely at $150,000 (single) / $250,000 (joint). The Bipartisan Policy Center explainer lays out these thresholds.

The vehicle rules are strict. The car generally must be purchased new after December 31, 2024, weigh under 14,000 pounds, be for personal use, and undergo final assembly in the United States. Leases do not qualify, and used cars do not qualify. As H&R Block notes, buyers should verify the assembly location using the vehicle’s window sticker or VIN before counting on the break.

How it interacts with the business deduction

Here is the rule that protects you from trouble: the OBBBA deduction covers only the personal-use portion of your interest. If you deduct 75% of your interest as a business expense, only the remaining 25% is even eligible for the OBBBA personal deduction. You can use both deductions in the same year on the same car — just on different slices of the interest, never the same dollar twice.

Worked example — both deductions on one car

Devon is a rideshare-and-personal driver. He bought a new, U.S.-assembled SUV in 2025 and paid $3,200 in interest. His business use is 40%, so $3,200 × 40% = $1,280 is deductible as business interest on Schedule C. The other 60% ($1,920) is personal. Because his MAGI is $85,000 (under the single-filer phase-out) and the car qualifies, he deducts that $1,920 under the OBBBA rule. Total interest deducted: $3,200 — split correctly across two rules.

Three Common Scenarios

Scenario 1 — Self-employed, car used mostly for business

Your Situation	What You Can Deduct
Sole proprietor, 80% business use, $2,500 interest paid in 2025	$2,000 (80%) as business interest on Schedule C, Line 16; the $500 personal share may qualify for the OBBBA deduction if the car and income qualify

Scenario 2 — S-corp owner, car titled personally

Your Situation	What You Can Deduct
S-corp owner, car and loan in your personal name, used 60% for business	Nothing directly on the corporate return; reimburse the 60% business share through a written accountable plan so the S-corp deducts it and you owe no tax on the reimbursement

Scenario 3 — W-2 employee using a personal car

Your Situation	What You Can Deduct
Employee, no employer reimbursement, new U.S.-assembled car, MAGI $90,000	No business interest deduction for 2025 (suspended through 2025); the full interest up to $10,000 may qualify under the OBBBA personal deduction

Named Examples

Carlos, the contractor. Carlos runs a one-person remodeling business as a sole proprietor. He financed a new pickup, paid $4,100 in interest in 2025, and uses it 90% for jobs. He deducts $3,690 (90%) on Schedule C. Because the truck weighs over 14,000 pounds for some models, he checks the weight rule before trying the OBBBA deduction on the personal 10%.

Priya, the real-estate agent. Priya is an independent agent (Schedule C). She uses the standard mileage rate at 70 cents per mile. She did not realize she could also deduct loan interest on top of mileage. After learning the rule, she adds her 70% business share of $2,600 interest — $1,820 — to Schedule C, lowering her self-employment tax too.

Tariq, the W-2 commuter. Tariq drives his own new, U.S.-built car to client sites for his employer, who does not reimburse him. He cannot deduct the business portion for 2025 because employee expenses are suspended. But his MAGI is $78,000 and the car qualifies, so he deducts up to $10,000 of interest under the new OBBBA rule.

Does My State Tax This?

Start with the federal rule, then check your state — because states do not automatically follow federal law. State income tax systems either “conform” to the federal rules or set their own.

The business-interest deduction is well established, and most states that tax business income allow it because they start from federal taxable income or federal AGI. The newer OBBBA personal deduction is far less certain at the state level. Many states use federal AGI as a starting point but specifically “decouple” from new federal deductions, meaning the break may lower your federal tax but not your state tax.

States with no income tax — such as Florida, Texas, Washington, Nevada, South Dakota, Wyoming, and Alaska — do not tax this either way, so the state question is moot for residents there. In conforming states like Colorado, the deduction often flows through automatically. In states that set their own rules, such as California, you should confirm with the state tax agency whether the personal deduction is honored before you assume state savings. The consequence of assuming conformity is a state notice and a corrected, higher state bill.

Standard Mileage vs. Actual Expenses

Choosing a method affects what else you deduct alongside interest, though interest is deductible under both. This comparison clears up a frequent point of confusion.

Standard Mileage Method	Actual Expense Method
Deduct 70 cents per business mile for 2025; covers gas, repairs, insurance, and depreciation; you still add business loan interest separately, prorated by business use	Deduct the business-use share of real costs (gas, repairs, insurance, depreciation) plus the business-use share of loan interest; requires detailed receipts and records

Under both methods, only the business-use percentage of interest is deductible, and the personal share is what the OBBBA rule may cover. The actual-expense method usually wins for expensive vehicles with high costs, while the standard mileage rate wins for fuel-efficient, high-mileage cars. The consequence of switching methods carelessly is locked-in depreciation rules — once you use actual expenses with accelerated depreciation, you generally cannot switch back to standard mileage for that car.

Mistakes To Avoid

Deducting 100% of interest when the car is mixed-use. The IRS only allows the business-use share; the rest is denied, with possible penalties.
Claiming business interest as a W-2 employee for 2025. Employee business expenses are suspended through 2025, so this deduction is disallowed.
Double-counting interest under both the business and OBBBA rules. The same dollar cannot be deducted twice; this overstates your deduction and invites correction.
Assuming the OBBBA deduction covers a used or leased car. It applies only to qualifying new, U.S.-assembled vehicles purchased after 2024; a used car claim is denied.
Ignoring the income phase-out on the OBBBA deduction. Above $150,000 single / $250,000 joint MAGI, the personal deduction is gone, and claiming it triggers a notice.
Forgetting interest is separate from the standard mileage rate. People skip thousands in interest because they think mileage covers it; it does not.
Keeping no mileage log. Without records of business vs. total miles, the IRS can disallow your entire business-use percentage.
Assuming your state follows the federal OBBBA rule. Many states decouple, so your state tax may not drop even when your federal tax does.

Do’s and Don’ts

Do keep a contemporaneous mileage log — it is the evidence that supports your business-use percentage if you are audited.
Do verify your vehicle’s U.S. final-assembly status before claiming the OBBBA deduction, because non-U.S. assembly disqualifies it.
Do put business interest on Schedule C, Line 16, so it is not tangled up with the mileage deduction.
Do use a written accountable plan for an S-corp when the car is titled personally, to keep reimbursements tax-free.
Do confirm your MAGI against the phase-out thresholds before counting on the personal deduction.
Don’t deduct interest twice across the business and personal rules — the IRS cross-checks reported figures.
Don’t claim employee business car interest for 2025, because the deduction is suspended.
Don’t assume a lease qualifies for the OBBBA deduction; lease interest is excluded.
Don’t estimate business mileage at year-end without records, since reconstructed logs are weak audit defense.
Don’t assume state conformity; check your state agency to avoid a corrected state bill.

Pros and Cons of Claiming Business Car Interest

Pro: It lowers both income tax and self-employment tax for sole proprietors, because Schedule C deductions reduce net profit.
Pro: You can claim it alongside the standard mileage rate, stacking two write-offs on one vehicle.
Pro: It is an established deduction with clear IRS support, so it carries low audit risk when documented.
Pro: It works for any business structure, from sole prop to corporation, when the vehicle is used for business.
Pro: Combined with the new OBBBA rule, a mixed-use car can capture nearly all its interest as deductible.
Con: It requires recordkeeping — a mileage log and loan statements — that many filers neglect.
Con: Only the business-use share is deductible, so a mostly personal car yields little.
Con: W-2 employees are shut out for 2025, leaving many workers without the business deduction.
Con: Method choices (mileage vs. actual) create depreciation rules that can limit future flexibility.
Con: State treatment varies, so the federal benefit may not carry over to your state return.

What To Do Next

Gather your records. Pull your 2025 loan interest total from your lender statement and your mileage log showing business vs. total miles.
Calculate your business-use percentage. Divide business miles by total miles, then multiply by total interest to get your deductible business amount.
Place the figures correctly. Put business interest on Schedule C, Line 16 (or the right corporate/partnership return), separate from car-and-truck expenses.
Check the OBBBA eligibility for the personal share. Confirm the car is new, U.S.-assembled, purchased after 2024, and that your MAGI is under the phase-out.
Confirm your state’s treatment. Check your state tax agency for conformity before assuming state savings.
Call a professional when it is complex. If you own an S-corp, drive a mixed-use vehicle, or sit near an income phase-out, a CPA or tax attorney can save you more than the fee. This article is educational and not a substitute for advice tailored to your situation.

FAQs

Can I deduct car loan interest if I’m self-employed? Yes. For tax year 2025, a self-employed person deducts the business-use share of car loan interest on Schedule C, Line 16. Prorate the interest by business miles divided by total miles, and keep a mileage log as proof.

Can I deduct interest if I use the standard mileage rate? Yes. The 2025 standard mileage rate of 70 cents per mile covers gas, repairs, and depreciation — but not loan interest. You add the business-use share of interest separately on Schedule C, on top of the mileage deduction.

Can a W-2 employee deduct business car loan interest in 2025? No. Unreimbursed employee business expenses are suspended through tax year 2025, so most employees cannot deduct it. Narrow exceptions exist for reservists and qualified performing artists; otherwise, ask for an accountable-plan reimbursement.

What is the OBBBA car loan interest deduction limit? $10,000 per year. For tax years 2025 through 2028, eligible buyers can deduct up to $10,000 of interest on a qualifying new, U.S.-assembled personal vehicle, even without itemizing. It phases out at higher incomes and expires after 2028.

Does the OBBBA deduction apply to a business vehicle? No. The OBBBA deduction covers personal-use interest only. The business-use share already qualifies as a business expense, so you split your interest: business share on Schedule C, personal share under the OBBBA rule — never both on the same dollar.

When does the new car loan interest deduction expire? After 2028. The OBBBA personal deduction applies to interest paid in tax years 2025 through 2028 and is scheduled to sunset after that, unless Congress extends it. Plan multi-year purchases with the expiration in mind.

Does a used or leased car qualify for the OBBBA deduction? No. The deduction requires a new vehicle purchased after December 31, 2024, with final assembly in the United States. Leases and used cars do not qualify, though business-use interest on those can still be deductible.

What income disqualifies me from the OBBBA deduction? $150,000 single / $250,000 joint. The personal deduction phases out starting at $100,000 MAGI (single) or $200,000 (joint) and fully disappears at $150,000 / $250,000 for tax year 2025. Business interest has no such income cap.

Where do I report business car loan interest? Schedule C, Line 16. Sole proprietors and single-member LLCs report there. Corporations use Form 1120 or 1120-S, and partnerships use Form 1065. Keep interest separate from car-and-truck expenses to avoid double-counting.

Does my state allow these deductions? It depends. Most states allow the established business-interest deduction, but many decouple from the new OBBBA personal deduction. No-income-tax states like Florida and Texas do not tax it either way. Check your state agency before filing.

Can an S-corp deduct car loan interest? Yes, if the loan and title are in the corporation’s name; it deducts the business share on Form 1120-S. If the car is titled to the owner, use a written accountable plan so the S-corp reimburses and deducts the business-use share.

Do I need a mileage log to deduct car interest? Yes. Your business-use percentage rests on business miles versus total miles, and the IRS can disallow the deduction without records. Keep a contemporaneous log — written or app-based — recording date, miles, and business purpose.

This article reflects federal rules and general state-conformity rules as of June 2026 and covers tax year 2025. Tax law changes and the OBBBA regulations are still proposed — confirm current figures before you file.

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