Car loan interest deduction for the self-employed

If you drive your own vehicle for work, car loan interest can now come off your return in two separate ways, and each one runs on its own rules. A new federal deduction lets qualifying buyers write off up to $10,000 of interest a year on a personal-use vehicle loan. A separate, long-standing rule lets self-employed drivers deduct the business-use share of that same interest as a business expense.

Here is the short answer for someone who files a Schedule C. The new deduction does not turn on how you actually drove the vehicle last year. It turns on what you expected when you signed the loan.

If you expected personal use to be more than half the time you would own the vehicle, the loan can clear that gate. If you expected business use to dominate, it cannot, and a year of heavy personal driving afterward does not change that. The Schedule C business-use write-off is untouched either way, and it still follows the business-use share of the interest the way it always has.

So the car loan interest deduction is a second write-off sitting beside the older Schedule C one rather than a new name for it, and self-employed drivers are not shut out of it. There is a gate on the front of it, though, and it is one a lot of them walk straight into.

The new deduction and the Schedule C write-off are two separate things

The new deduction covers up to $10,000 of qualified passenger vehicle loan interest per federal tax return, whatever your filing status. Married taxpayers filing separately apply the $10,000 limit separately on each return. It applies to tax years beginning after December 31, 2024 and before January 1, 2029.

You claim it on Schedule 1-A (Form 1040), Part IV. The total from line 38 carries to Form 1040 line 13b, or Form 1040-NR line 13c. It is available whether you take the standard deduction or itemize.

The business deduction is older and simpler. Publication 463 states it plainly. "If you are self-employed and use your car in your business, you can deduct that part of the interest expense that represents your business use of the car. For example, if you use your car 60% for business, you can deduct 60% of the interest on Schedule C (Form 1040)."

Publication 463 writes that rule for a filer who reports business income on Schedule C. If your business income arrives on a K-1 from your own S corporation, the Schedule C mechanics in the sections below describe a different return from yours. The rules that do reach that structure are further down, under what happens when your business income comes on a K-1.

They behave differently on the return, and that difference matters more for a self-employed filer than for anyone else.

One honest caveat before the details. The rules below come from proposed regulations on car loan interest published January 2, 2026 at 91 FR 67. They are proposed, not final, and the notice includes a public hearing.

The IRS's own 2025 form instructions already apply them and cite them by section, so this is what the current forms are built on. It is still worth knowing the underlying rules are not yet settled. If you want the plain walk-through of the deduction itself, start with the general guide to what counts as deductible car loan interest.

The test runs on what you expected the day you signed

Personal use means use that is not in any trade or business and not for the production of income. Working as an employee is carved out. Driving done in the trade or business of performing services as an employee lands on the personal side of this test, so the commute to a W-2 job counts as personal use.

The carve-out covers more than the commute. If your own S corporation pays you as an employee, whether a particular trip counts as driving in the trade or business of performing services as an employee is a question of fact about your arrangement, and it belongs with whoever prepares your return.

You are treated as having purchased the vehicle for personal use if, at the time you incur the loan, you expect personal use to exceed 50% of the time you expect to own it. The regulation is explicit that this is satisfied in connection with incurring the debt, as opposed to an ongoing requirement. It is measured once, at the front.

The IRS gives three short examples, and two of them land directly on this reader.

• A rideshare driver. The taxpayer expects to use the vehicle to earn income as a rideshare driver 15% of the time and personally the other 85%. That taxpayer is considered to have purchased it for personal use. Earning rideshare income for 15% of the time does not preclude it.
• A sole proprietor with heavy business use. At the time the taxpayer incurs the loan, the taxpayer expects to use the vehicle in a contracting business that is a sole proprietorship 60% of the time, and personally the remaining 40%. That taxpayer is not considered to have purchased the vehicle for personal use, because personal use was not expected to exceed 50%.
• A vehicle bought for a family member. A taxpayer who expects the vehicle to be used exclusively for personal use by the taxpayer's child is considered to have purchased it for personal use.

Who counts as a personal driver

Personal use is not limited to your own trips. It includes use by you, your spouse, and individuals related to you under section 152(c)(2) or (d)(2). The people named there are your or your spouse's child, grandchild, father, mother, brother or sister, and an individual who has the same main home as you and is a member of your household.

The person signing the loan does not have to be the person putting personal miles on the vehicle.

Your paperwork may already answer this

The regulation says the IRS may consider information relating to expected usage, such as information in the loan documentation and the type of collision and liability insurance held on the vehicle. The preamble notes that automotive retail installment sales contracts often indicate whether the vehicle is for personal or business use.

If you signed one of those at a dealership in 2025, the answer to the expectation question may already be written on a form in your glove box.

What Treasury's own data says about drivers like you

Treasury and the IRS estimate that in tax year 2023, sole proprietors who filed electronically placed 5 million vehicles in service for business purposes. About 80% of those taxpayers indicated the vehicle was also available for personal use during off-duty hours.

Among filers whose vehicle was available for personal use, roughly 40% drove it more than 50% of its total mileage for personal use. The median share of total miles driven for business purposes was about 80%.

Treasury attaches a caveat to that table, and it belongs with the numbers. The 5 million total includes used, leased and foreign-assembled vehicles, which are not eligible for this deduction, and it counts sole-proprietorship-and-vehicle pairs, so a vehicle placed in service for two businesses appears twice.

Separately, Treasury estimates roughly 700,000 annual loans on new, United States assembled vehicles for mixed personal and business use. The 700,000 comes from an estimated 6 million annual loans on new US-assembled vehicles and an 11% mixed-use share drawn from the 2023 Panel Study of Income Dynamics.

Those patterns describe the driving that happened after the purchase. The expectation test reads the forecast the buyer held at the time of incurring the loan, the personal use they anticipated across the time they expected to own the vehicle. It reads that forecast once.

Your business-use write-off did not go anywhere

Whatever happens with the new deduction, the business side is unchanged. You deduct the share of the interest that represents your business use of the car.

Two mechanical points that trip people up.

First, car loan interest is not part of the car and truck expense line on Schedule C. On the Schedule C instructions, line 16a is for mortgage interest on real property paid to banks or other financial institutions for which a Form 1098 was received. Interest without such a form goes on line 16b. Vehicle loan interest belongs there.

Second, the standard mileage rate does not shut this off. Publication 463 says so directly. "You may be able to take a deduction for interest paid on a car loan even if you use the standard mileage rate."

Working out the business-use percentage itself, and the records that support it, is its own subject. The full walk-through of splitting one vehicle between personal and business use covers the proration mechanics with dollar figures.

Commuting, and what a home office changes

Daily transportation from home to one or more regular places of business is generally a nondeductible commuting expense. There are exceptions. Travel between your residence and a temporary work station outside the metropolitan area where you live can qualify. So can travel where you have one or more regular work locations away from your residence.

The third exception is the one with a home office in it. Where your residence is your principal place of business, travel between the residence and another work location in the same trade or business can qualify. It qualifies regardless of whether the work is temporary or permanent, and regardless of distance.

The home office exception moves real numbers. If an office in your home qualifies as a principal place of business, you can deduct daily transportation costs between your home and another work location in the same trade or business. Publication 587 covers whether the home office qualifies. A qualifying home office changes which trips count as business trips, which in turn changes the business-use share the whole calculation runs on.

When the same interest qualifies both ways, you get to choose where it goes

You may have heard this called double dipping. The actual rule is narrower and stranger than that phrase suggests. You cannot count the same dollar twice. You are allowed to decide which side each dollar goes to.

Publication 463 puts the choice in writing. "If you are self-employed and eligible to deduct interest as either qualified passenger vehicle loan interest or as business interest, you can choose to report the deduction on either Schedule 1-A (Form 1040) or Schedule C (Form 1040), but you cannot deduct the same amount more than once."

The Schedule 1-A instructions say the same thing from the other direction. Qualified passenger vehicle loan interest is shortened there to QPVLI. "If some or all of the QPVLI qualifies to be deducted in more than one place on your return, you may choose where to report the deduction, but you cannot deduct the same amount more than once. For example, if you deducted some or all of the interest that you paid or accrued on your loan as interest on Schedule C, Schedule E, or Schedule F, then you can't deduct that same interest as QPVLI on Schedule 1-A."

The form is built for exactly this. Schedule 1-A line 22 has three columns. Column (i) is the vehicle identification number. Column (ii) is the amount of that loan's qualifying interest you deducted elsewhere on the return, for example on Schedule C, E or F. Column (iii) is the loan's total qualifying interest minus column (ii). Line 24 cannot exceed $10,000, and the form asks you to declare the split.

The regulation calls the overlap independently deductible interest. Here are the three examples it gives, each with modified adjusted gross income under $100,000.

The third row is the one to sit with. Sent entirely through the vehicle loan deduction, that interest stops at $10,000. Split, it reaches the $3,000 of business interest the limit would otherwise strand.

The regulation's preamble adds a fourth illustration that fits a mixed-use driver closely. A taxpayer finances a vehicle expecting 60% personal and 40% business use, pays $3,500 of interest in a year, and actually drives 55% personal and 45% business that year.

Under the 50% standard that taxpayer can potentially deduct all $3,500 as vehicle loan interest. Alternatively the taxpayer has discretion to deduct $1,575, which is 45% of $3,500, as interest properly allocable to a trade or business, and $1,925 as vehicle loan interest.

Why the routing is not neutral when you are self-employed

Both routes take the interest off your return. They do not take it off in the same place, and for a Schedule C filer the place is what matters.

The vehicle loan deduction is not an adjustment to income. Adjusted gross income is Form 1040 line 11, and the Schedule 1-A total lands on line 13b, after it. So this deduction does not reduce adjusted gross income. It does not reduce the modified adjusted gross income used for its own phase-out. And it does not reduce self-employment tax.

The qualified business income deduction sits in the same position, figured on Form 8995 or 8995-A and claimed after adjusted gross income, so it does not move that number either.

Interest deducted as a business expense behaves differently. It reduces the business's net profit. Net profit is the figure that carries into Schedule SE, and one-half of self-employment tax is then deducted in figuring adjusted gross income. Tax Topic 554 says it directly. "When figuring your adjusted gross income on Form 1040, Form 1040-SR, or Form 1040-NR, you can deduct one-half of the self-employment tax."

Business interest has a gate of its own before it reaches line 16b. The Schedule C instructions require Form 8990 to deduct any interest expense of that trade or business. Small business taxpayers are excepted, as are filers who meet one of the other filing exceptions listed in the Instructions for Form 8990. The regulation's three worked examples carry the same qualifier, calling the business-interest amount deductible after considering any applicable limitations.

The instructions give the taxpayer the choice and stop there. Which route produces a better result on a real return depends on the rest of that return. A self-employed filer is already taking adjustments on Schedule 1, Part II. Line 15 is the deductible part of self-employment tax, line 16 covers self-employed SEP, SIMPLE and qualified plans, and line 17 is the self-employed health insurance deduction.

Every one of those lines pulls adjusted gross income down. Interest sent to Schedule C pulls it down as well, through net profit, and that same net profit is where Schedule SE starts. Interest sent to Schedule 1-A leaves both figures where they were.

What the vehicle and the loan each have to clear

The routing question only matters once the vehicle and the loan clear their own conditions.

The vehicle

• Its original use starts with you, so a used vehicle does not qualify
• Manufactured primarily for use on public streets, roads and highways
• At least two wheels
• A car, minivan, van, SUV, pickup truck or motorcycle
• Gross vehicle weight rating under 14,000 pounds
• Final assembly in the United States

Final assembly is checkable two ways. The vehicle information label attached to the vehicle on the dealer's premises shows it, and so does the plant of manufacture reported in the VIN through the NHTSA VIN Decoder. If you want the step-by-step version, the guide to checking final assembly from a VIN walks through it.

The VIN of each vehicle also has to be reported on the return to take the deduction. Schedule 1-A line 22 has room for two, and more than that means attaching a statement.

The loan

• Originated after December 31, 2024
• Originated by you. Indebtedness qualifies only if it was originally incurred by the taxpayer, and if someone replaces you as obligor it stops qualifying. There is an exception where you became the obligor by reason of the previous obligor's death. If the loan met the requirements when originated, the interest generally still qualifies while a first lien on the vehicle remains
• Used to purchase the vehicle. Lease payments do not qualify. Lease financing is a transaction that is not a purchase, where the taxpayer has usage rights but is not the owner under state or other applicable law. If your vehicle is leased, the comparison of leased versus financed vehicles covers where that leaves you, including buyouts
• Secured by a first lien on the purchased vehicle

The qualifying balance includes the purchase price plus amounts customarily financed in a vehicle purchase and directly related to the vehicle, such as vehicle service plans, extended warranties, sales tax, and vehicle-related fees. It excludes liability insurance, a trailer, and negative equity rolled in from a trade-in.

Refinancing has a rule of its own. If a loan that produced qualifying interest is later refinanced, interest on the refinanced amount generally still qualifies as long as the new loan is secured by a first lien on the same vehicle. The qualifying amount is capped at the outstanding balance on the refinancing date.

Who the borrower has to be

Business structure decides who owns the loan, and most people never think about it until it matters. Only individuals, decedents' estates, and non-grantor trusts may deduct this interest. The regulation gives a reason for the limit, which is that only those taxpayers could be considered to have purchased a vehicle for personal use.

Two structures fold back into the individual. An entity disregarded as separate from its owner is treated as the activities of its owner for federal income tax purposes, under section 301.7701-3(b). A loan carried by a single-member LLC of that kind sits with the owner.

For a grantor trust, the deemed owner is treated as owner of the vehicle and obligor of the loan. The phase-out is then measured on the deemed owner's modified adjusted gross income rather than the trust's.

If your business income comes on a K-1

A corporation is not on the list above, and the two structures that do fold back into it are the disregarded entity and the grantor trust. The proposed regulation does not work through S corporations anywhere in its text, so a shareholder looking for a rule written for their own structure will not find one.

The question of who incurred the debt runs in the same direction. Indebtedness qualifies only if it was originally incurred by the taxpayer claiming the deduction. The first fact to pin down is whose name is on the original contract, yours or the company's.

The business-interest route has a boundary here as well. Publication 463 writes it for a filer reporting business income on Schedule C, and line 16b is a Schedule C line. The Schedule 1-A instructions name Schedule C, Schedule E, or Schedule F as the examples of where qualifying interest may already have been deducted elsewhere on a return.

A corporate return is not among those examples. The instructions say "for example", so the list is illustrative rather than exhaustive. The expectation test carries a piece of this too, since driving done in the trade or business of performing services as an employee counts on the personal side of the 50% question.

Where all of that leaves a particular company and a particular loan is a question for whoever prepares your return. Bring the loan contract and the entity paperwork when you ask.

The income limit and how the phase-out works

Modified adjusted gross income sounds like a specialist term. For most people in this situation it is simply the adjusted gross income already on their return. Formally it means adjusted gross income under section 62, increased by any amount excluded from gross income under sections 911, 931 or 933.

On the form, it is the amount on Schedule 1-A, Part I, line 3. If you have no excluded Puerto Rico income and are not filing Form 2555 or Form 4563, you enter the amount from Form 1040 line 11b on Schedule 1-A line 3. Otherwise you complete Part I lines 2a through 2e.

The reduction begins at $200,000 for married filing jointly and $100,000 for all other filing statuses. After the $10,000 limit is applied, the amount is reduced, but not below zero, by $200 for each $1,000, or portion of $1,000, by which modified adjusted gross income exceeds the threshold.

The IRS works one through. A single filer paid $7,000 of qualifying interest and has modified adjusted gross income of $124,200. That exceeds $100,000 by $24,200. $24,200 divided by $1,000 is 24.2, rounded up to 25. 25 times $200 is $5,000. The $7,000 is reduced by $5,000, so the maximum deductible amount is $2,000.

Note what does not move that number. This deduction lands after adjusted gross income, so it never lowers the figure used in its own phase-out. What does move it for a self-employed filer are the retirement and health insurance adjustments already on Schedule 1. If you are close to a threshold, the standalone guide to the income limits goes deeper than this section does.

Common questions about the car loan interest deduction when you are self-employed

Can I take the new deduction and still write off my car on Schedule C?

Both can appear on the same return for the same loan, but never on the same dollar. The instructions are explicit that interest deducted as business interest on Schedule C, E or F cannot also be deducted as qualified passenger vehicle loan interest on Schedule 1-A.

Does the deduction still work if I use the standard mileage rate?

Using the standard mileage rate does not by itself rule out a deduction for car loan interest. Publication 463 addresses it directly. "You may be able to take a deduction for interest paid on a car loan even if you use the standard mileage rate."

I lease my work vehicle. Does that qualify?

No. Loan proceeds have to have been used to purchase the vehicle, and lease payments do not qualify. Lease financing is defined as a transaction that is not a purchase, where the taxpayer has usage rights but is not the owner under state or other applicable law.

I bought a used truck in 2025. Does it count?

No. The vehicle must be one whose original use starts with you, so a used vehicle does not qualify, even if everything else about the loan lines up.

Where does car loan interest actually go on Schedule C?

Line 16b. Line 16a is reserved for mortgage interest on real property paid to banks or other financial institutions for which a Form 1098 was received, and interest without such a form goes on line 16b. It is not part of the car and truck expense line.

My business income comes on a K-1 from my own S corporation. Where does that leave me?

The taxpayers the regulation lists as able to deduct this interest are individuals, decedents' estates, and non-grantor trusts, and a corporation is not among them. The regulation does not work through S corporations at all. Who originally incurred the debt matters as well, since indebtedness qualifies only if it was originally incurred by the taxpayer claiming the deduction. Take the loan contract and your entity paperwork to whoever prepares your return.

Does this deduction lower my self-employment tax?

No. Self-employment tax is figured on Schedule SE from net earnings that start with the net profit reported on Schedule C. The vehicle loan deduction lands on Form 1040 line 13b, after adjusted gross income, so it does not reach that figure.

What if my lender never sends Form 1098-VLI?

Filing that form is the lender's job. A person who, in a trade or business, receives at least $600 of interest on a specified passenger vehicle loan from a payor of record for a calendar year must file an information return with the IRS. The same person furnishes a statement to the payor of record, and the statement includes the year, make, model and vehicle identification number.

If nothing has arrived, there is a separate walk-through of what to do when the lender has not sent the statement before you file. To see what you should be receiving in the first place, start with what Form 1098-VLI is and what a lender puts on it.

Can this apply to more than one vehicle?

The $10,000 limit is per federal tax return, not per vehicle, and the VIN of each vehicle has to be reported. Schedule 1-A line 22 has room for two, and more than that means attaching a statement.

If you are stacking several vehicle-related deductions in one year, the guide to claiming more than one deduction in the same year covers how those interact.

My spouse and I file separately. Do we each get the full amount?

Married taxpayers filing separately apply the $10,000 limit separately on each return. The limit is written per federal tax return, regardless of filing status.

What to pull together before you file

The work here is short, and doing it in this order saves the wasted evening.

Then take all four to whoever prepares your return, and ask the routing question out loud. Which schedule each dollar of that interest belongs on is a real decision with real money attached, and it depends on the shape of your whole return. Nothing on this page can tell you whether your loan clears the conditions or where your dollars should land. A preparer looking at your actual numbers can, and they can do it much faster when you hand them the contract, the VIN, the interest figure and the percentage instead of a shoebox.