IRS Introduces $10K Tax Deduction to Reduce 2026 Tax Bills Nationwide

Tax season 2026 has begun, bringing significant changes to tax filing procedures. A noteworthy new policy is the $10,000 tax deduction aimed at reducing federal tax bills nationwide.

$10,000 Tax Deduction on Vehicle Loan Interest

This deduction allows taxpayers to deduct interest paid on qualifying vehicle loans, up to $10,000 each year. This applies to tax years from 2025 to 2028.

Eligibility for the Deduction

• The loan must be for a passenger vehicle intended for personal use.
• Interest must be paid on loans secured by the purchased vehicle.
• The loan must originate after December 31, 2024.
• Only new cars that are American-made qualify, meaning the final assembly must be in the U.S.

To qualify, the original use of the vehicle must begin with the taxpayer, excluding used cars from eligibility. Lease payments are also not eligible for this deduction.

Income Limitations

This new deduction is not universally accessible. It begins to phase out for individuals with a modified adjusted gross income over $100,000 or for married couples filing jointly with an income over $200,000. As a result, fewer high-income earners will benefit from this deduction.

Filing Considerations

When claiming this deduction, taxpayers should ensure their banks report the paid interest accurately. The IRS categorizes this deduction as “above-the-line,” which means it reduces adjusted gross income. This is beneficial since it is available regardless of whether the taxpayer itemizes deductions or opts for the standard deduction.

The deduction will be in effect through the 2028 filing season unless Congress decides to extend it further.