Sometimes, on your federal return. If you itemize deductions on Schedule A, you can elect to deduct state and local general sales taxes instead of state income taxes, and sales tax paid on a car counts. You can't take both, and the combined state and local tax (SALT) deduction is capped, at $40,000 for most filers on 2025 returns, reduced for incomes above $500,000. Because California's income tax is high, many Californians come out ahead deducting income tax instead. Separately, interest on a loan for a qualifying new U.S.-assembled car may be deductible for 2025–2028; used cars don't qualify.
Educational information only. This article is not tax, legal or financial advice. Ask a licensed tax professional about your return.
In this article
- The sales tax deduction
- Car loan interest deduction (new cars only)
- The vehicle license fee
- Business vehicles
- Frequently asked questions
The sales tax deduction
| Rule | Detail (2025 Schedule A instructions) |
|---|---|
| Who can use it | Taxpayers who itemize |
| The choice | Deduct state and local income tax or general sales tax, not both (Schedule A, line 5a) |
| Vehicle sales tax | Deductible as a general sales tax, even if the vehicle rate differed. If it was higher than the general rate, deduct only what you'd have paid at the general rate |
| Leases | Sales tax paid on a leased vehicle counts |
| Method | Actual receipts, or IRS tables plus the vehicle tax added on top |
| Cap | $40,000 ($20,000 married filing separately), reduced when modified AGI exceeds $500,000, but not below $10,000 |
Car loan interest deduction (new cars only)
| Rule | Detail |
|---|---|
| Years | 2025 through 2028 |
| Maximum | $10,000 a year |
| Vehicle | New car, minivan, van, SUV, pickup or motorcycle under 14,000 lbs GVWR, final assembly in the U.S., for personal use. "Used vehicles do not qualify." |
| Loan | Originated after Dec. 31, 2024, secured by the vehicle. Leases don't qualify |
| Income limit | Phases out above $100,000 modified AGI ($200,000 joint) |
| Reporting | Include the VIN on your return |
| Itemizing required? | No |
Source: IRS, Working Families Tax Cuts deductions (Opens in new window).
The vehicle license fee
The IRS lets you deduct personal property taxes based on value and charged yearly, and only the value-based part of a registration fee counts. California's vehicle license fee (VLF) is 0.65% of the vehicle's value, and it's listed on your registration notice. Ask your tax preparer whether to include it. See What is the vehicle license fee in California?
Business vehicles
If the car is used in a business, the rules are different: the sales tax generally becomes part of the vehicle's cost basis and is recovered through depreciation, not deducted on Schedule A. Talk to a tax professional.
Frequently asked questions
Can I deduct the sales tax I paid on a car?
Yes, if you itemize and elect to deduct sales tax instead of state income tax, within the SALT cap.
Is interest on a used car loan deductible?
Not under the 2025–2028 car loan interest deduction. Only new vehicles qualify.
Is the California VLF tax deductible?
The value-based VLF may qualify as a personal property tax if you itemize. Confirm with a tax professional.
Related questions
- What is the vehicle license fee in California?
- What taxes and fees do you pay on a used car in California?
- Does a trade-in reduce sales tax in California?
- Back to the California Dealer License FAQ
Resources
- IRS Topic 503: Deductible taxes (Opens in new window)
- IRS: Instructions for Schedule A (2025) (Opens in new window)
- IRS: Tax deductions for working Americans and seniors (car loan interest) (Opens in new window)
- IRS: Schedule 1-A, Additional Deductions (Opens in new window)
Sources: IRS Topic 503 (Opens in new window) · 2025 Schedule A instructions (Opens in new window) (vehicle sales tax, $40,000 cap, $500,000 MAGI reduction, $10,000 floor) · IRS car loan interest guidance (Opens in new window). Verified 2026-10-16.
This article is for educational purposes only and is not tax, legal or financial advice. Tax law changes and depends on your situation; consult a licensed tax professional.