About the Car Loan Interest Deduction Calculator
The One Big Beautiful Bill Act created a temporary deduction for interest on loans used to buy a new personal vehicle that was assembled in the United States. This calculator estimates how much interest you will pay in a given calendar year, applies the $10,000 annual cap and the income phase-out, and shows the deduction and the federal tax it saves — for every year from 2025 through 2028, when the break expires.
Enter your loan amount, APR, term and first payment date along with your filing status and income, and the calculator builds the amortization schedule itself. The deduction drops by $200 for every $1,000 (or part of $1,000) that your modified adjusted gross income exceeds $100,000, or $200,000 on a joint return, exactly as on Schedule 1-A, Part IV. It is claimed whether you itemize or take the standard deduction.
To qualify, the loan must have been taken out after 31 December 2024, be secured by a first lien on the vehicle, and be used to buy a new (not used) car, minivan, van, SUV, pickup or motorcycle under 14,000 lb for personal use, with final assembly in the United States. Leases, fleet purchases and business vehicles do not qualify, and you must report the VIN on your return.
With the default inputs, the deductible car loan interest is $2,580.66. Change any value above to recalculate instantly.
How to use the car loan interest deduction calculator
- 1Confirm the vehicle is new, assembled in the US, bought for personal use with a loan taken out after 2024.
- 2Enter your filing status and modified adjusted gross income.
- 3Enter the amount financed, APR, term and the month and year of the first payment.
- 4Pick the tax year and your federal bracket to see the deduction and tax saved.
- 5Check the yearly table to see the deduction through 2028.
Formula and method
Interest for each calendar year comes from a standard monthly amortization schedule: each month’s interest is the outstanding balance × APR ÷ 12, and the rest of the level payment reduces the balance. Months are assigned to calendar years from the date of your first payment, so a loan that starts mid-year has a partial first year.
The deductible amount follows Schedule 1-A, Part IV: the year’s qualified interest is capped at $10,000, then reduced by $200 for every $1,000 — rounding any fraction up to a whole $1,000 — by which MAGI exceeds $100,000 ($200,000 for joint filers). The tax saved is the deduction × your marginal federal bracket; because it is a deduction, not a credit, it does not reduce self-employment or state tax unless your state conforms.
- Interest
- Qualified passenger vehicle loan interest paid in the tax year
- MAGI
- Adjusted gross income plus excluded foreign income
- T
- Phase-out threshold: $100,000, or $200,000 if married filing jointly
Worked examples
$40,000 loan at 7% for 60 months, first payment January 2026
Payments of $792.05 a month include about $2,581 of interest during 2026. With MAGI of $90,000 there is no phase-out, so the whole amount is deductible and saves about $568 in the 22% bracket. Interest of $2,080 in 2027 and $1,543 in 2028 is also deductible, about $6,204 in total before the break ends.
Joint filers over the income threshold
A $60,000 loan at 8% over 72 months generates about $4,507 of interest in 2026. MAGI is $12,500 over the $200,000 joint threshold, which rounds up to 13 × $1,000, so the deduction is reduced by $2,600 to about $1,907.
Foreign-assembled vehicle
Interest on a vehicle whose final assembly was outside the United States does not qualify, so no deduction is allowed even though the loan generates about $2,581 of interest in 2026.
Frequently asked questions
Is car loan interest tax deductible in 2026?+
Yes, for tax years 2025 through 2028, if the loan was taken out after 31 December 2024 to buy a new personal-use car, SUV, van, pickup or motorcycle with final assembly in the United States. You can deduct up to $10,000 of interest a year, subject to an income phase-out.
Do I need to itemize to claim the car loan interest deduction?+
No. It is claimed on Schedule 1-A and reduces taxable income whether you take the standard deduction or itemize. It does not reduce adjusted gross income.
How does the income phase-out work?+
The deduction is reduced by $200 for each $1,000, or fraction of $1,000, by which modified AGI exceeds $100,000 ($200,000 for married filing jointly). A taxpayer with $10,000 of interest loses the deduction completely at $150,000 of MAGI ($250,000 joint).
How do I know if my car was assembled in the US?+
The final assembly location is printed on the vehicle information (Monroney) label on new cars, and the IRS also lets you rely on the plant of manufacture encoded in the vehicle identification number (VIN). You must report the VIN on your return.
Do used cars, leases or refinanced loans qualify?+
Used vehicles and leases do not qualify — the original use must begin with you and the debt must be a purchase loan secured by the vehicle. A refinance of a qualifying loan can generally continue to qualify up to the refinanced balance of the original loan.
Can I deduct car loan interest for a business vehicle?+
Business use is handled separately: self-employed people deduct the business share of car loan interest on Schedule C, and this personal deduction covers only interest not deducted there. Vehicles bought for business or fleet use are excluded from the new deduction.
Tax results are estimates based on published rules and simplified assumptions. They are not tax advice — check official guidance or a tax professional for your situation.