CLICar Loan Interest Deduction

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Refinancing and the car-loan interest deduction

Refinancing doesn’t automatically kill the deduction — but the cash-out portion never qualifies.

A refinanced loan can still qualify if all of these hold: Thomson Reutersproposed reg

  • the original loan and vehicle met all the rules (new, U.S.-assembled, post-2024 origination, etc.);
  • the new loan is a first lien on the same vehicle; and
  • the new balance is not more than the outstanding balance being refinanced.
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Cash-out doesn’t count. If you refinance for more than you owed and pocket the difference, interest on that extra amount is not deductible — only the portion replacing the original car loan qualifies.

Note that a loan originally taken before 2025 doesn’t become eligible just by refinancing it in 2025 — the original origination date still governs.

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Not tax advice. Educational information about the federal car-loan interest deduction, current as of June 2026. The IRS rules are proposed regulations and could change — verify with the IRS or a tax professional before filing.