Car Loan Interest Deduction Calculator
Check whether your car loan qualifies for the new federal interest deduction, see how much interest you can deduct after the income phase-out, and estimate the income tax it saves.
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EstimateThis calculator provides estimates for educational and informational purposes only. It does not constitute financial, investment, legal, accounting, or tax advice. Results are based on the assumptions and information entered and may differ materially from actual outcomes. Tax rules and financial regulations can change. Consult an appropriately qualified professional for advice specific to your situation.
Rules for these deductions come from the One Big Beautiful Bill Act and IRS guidance. They can be clarified or changed, so confirm the current rules at irs.gov before filing.
- Checks the loan against the IRS conditions: new vehicle, U.S. final assembly, personal use, a lien, and a loan that started after 2024.
- Calculates the interest you paid in the year from your loan terms, or uses the figure from your lender's statement.
- Applies the $10,000 cap and the phase-out of $200 per $1,000 of modified AGI above $100,000 ($200,000 joint).
- Estimates the federal income tax saved, with and without the deduction.
How to use this calculator
Enter your filing status, modified adjusted gross income (MAGI), and your loan's original amount, interest rate and term. If the loan started in an earlier year, enter how many payments you had made by the first day of the tax year so the calculator picks the right twelve months. Open Advanced to confirm the vehicle conditions, or to type in the interest your lender reported.
Which loans qualify
The IRS lists these conditions for the car loan interest deduction:
- New loan. The loan was taken out after December 31, 2024.
- New vehicle. The vehicle's original use begins with you, so used cars do not qualify.
- Type of vehicle. A car, minivan, van, SUV, pickup truck or motorcycle with a gross vehicle weight rating under 14,000 pounds.
- U.S. assembly. Final assembly took place in the United States. You can check the plant on the dealer's label or by decoding the VIN with NHTSA's tool.
- Personal use. The vehicle is for personal rather than business use.
- Secured loan. The loan is secured by a lien on the vehicle. Lease payments do not qualify.
Interest on a refinanced loan generally keeps qualifying, and you must list the vehicle's VIN on your return.
How the deduction is calculated
Interest paid = interest in the tax year (from your loan, or your lender's statement) Before phase-out = lesser of interest paid or $10,000 Excess income = MAGI minus $100,000 ($200,000 if married filing jointly) Reduction = $200 x (excess income / $1,000, rounded up) Deduction = before phase-out minus reduction (not below zero)
Note the rounding: for this deduction a partial thousand counts as a full thousand, which differs from the tips and overtime deductions.
A worked example
A single buyer finances $38,000 for a new American-assembled SUV at 7.5% for 72 months, starting this year. First-year interest is about $2,673. With a MAGI of $85,000, below the $100,000 threshold, the whole amount is deductible, and federal income tax falls by about $588.
At a MAGI of $110,000, income is $10,000 over the threshold, so the reduction is 10 x $200 = $2,000 and the deduction drops to $673.
Interest is front-loaded
On a car loan, most of each early payment is interest. That makes the deduction larger in the first and second years and smaller as the balance falls. The calculator's “payments already made” field lets you see this by changing how many payments were made before the tax year began.
Assumptions and limitations
- Tax years 2025 through 2028. The deduction is temporary.
- Vehicle conditions are self-reported. The calculator does not look up your VIN or confirm where the vehicle was assembled.
- First-year interest counts twelve months. If your loan started partway through the year, the interest you can deduct that year is lower; use the lender statement figure under Advanced.
- Payments are on schedule. The interest estimate assumes level monthly payments with no extra principal. Use your lender's year-end statement for the exact amount.
- Standard deduction. The saving assumes you take the standard deduction. Credits and state taxes are not modelled.
Common mistakes
Assuming any car qualifies. Used vehicles, leased vehicles and vehicles assembled outside the United States are excluded.
Deducting principal. Only the interest portion of your payments counts.
Ignoring the phase-out. It is steep: $200 of deduction disappears for every $1,000 over the threshold, so the full $10,000 is gone across a $50,000 range of income.
Leaving off the VIN. The vehicle identification number has to be on your return for any year you claim it.
Frequently asked questions
$10,000 of interest per year, for tax years 2025 through 2028. It is reduced by $200 for every $1,000 (or part of $1,000) of modified AGI above $100,000, or $200,000 for joint filers.
No. It is claimed on Schedule 1-A of Form 1040 and is available if you take the standard deduction or itemize.
No. The vehicle's original use must begin with you, so only new vehicles qualify, and final assembly must have taken place in the United States.
No. Lease payments are not interest on a loan secured by a lien on the vehicle, so they do not qualify.
Generally yes. Interest on a refinanced qualifying loan is generally eligible, up to the same annual cap.
Your lender must report the interest on an information return and provide a statement. Enter that figure under Advanced to override the calculator's estimate.