Car Loan Interest Deduction Calculator
The 2025 One Big Beautiful Bill Act lets you deduct up to $10,000 of interest a year on a loan for a new, US-assembled vehicle bought for personal use — for tax years 2025 through 2028. Enter your loan and income to see your estimated first-year interest, how much is deductible after the income phase-out, and what it actually saves you. Everything runs in your browser — nothing is uploaded.
Estimate for general guidance only — not tax advice. The first-year interest assumes a fully amortizing fixed-rate loan and 12 monthly payments in the first year. The tax-saving figure uses the 2026 federal brackets and treats your income as taxed against the standard deduction (married filing separately is estimated with the single table). It does not model state tax, AMT, or your full return. Verify with the IRS or a tax professional, and report the vehicle's VIN on Schedule 1-A.
Does every car loan get a $10,000 write-off? No — read this first
1. It's a deduction, not a credit. The $10,000 is a ceiling on deductible interest, not $10,000 off your tax bill. Your real saving is the deduction times your marginal rate — for a typical first-year interest of about $2,400, a filer in the 22% bracket saves roughly $527, not $2,400.
2. Used cars and leases don't qualify. The vehicle must be new — original use begins with you. Used cars, lease-end buyouts, and any lease financing are out, and so are RVs, campers, trailers, and ATVs.
3. Only loans taken out in 2025 or later. The loan must be incurred after December 31, 2024 and secured by a first lien on the car. A loan you signed in 2024 doesn't qualify even though you're still paying interest on it.
4. It must be assembled in the US. Final assembly has to be in the United States. Check the plant code in your VIN at the free NHTSA decoder, or the "Final Assembly Point" line on the window sticker — the brand's headquarters is irrelevant.
5. Available to non-itemizers. Good news: you don't have to itemize. It's claimed on Schedule 1-A and reduces taxable income after your AGI, so you can take it alongside the standard deduction — but it does not lower your AGI.
How the car loan interest deduction works
The One Big Beautiful Bill Act (signed July 2025) added Internal Revenue Code §163(h)(4), "qualified passenger vehicle loan interest." For 2025 through 2028 you can deduct the interest you pay on a qualifying auto loan, up to $10,000 a year.
Per return, not per vehicle. The $10,000 cap applies to the whole return. A married couple filing jointly still shares one $10,000 limit; two qualifying cars' interest is added together under that single cap. Married filing separately is the exception — each spouse's return gets its own $10,000.
The income phase-out. If your modified adjusted gross income (MAGI) is over $100,000 ($200,000 for a joint return only — single, head of household, and married filing separately all use $100,000), the deduction drops by $200 for every $1,000 (or part of $1,000) above the threshold. Because the reduction comes off your deductible interest after the $10,000 cap, a taxpayer with a full $10,000 is fully phased out at $150,000 of income (single) or $250,000 (joint) — but someone with only $3,000 of interest phases out much sooner, around $114,000.
What counts as interest. Only the interest portion of your payments — not principal, and not the whole payment. Interest is front-loaded, so year one is the biggest deduction and it shrinks every year as the balance falls. For a $40,000 loan at 6.5% over 60 months, first-year interest is about $2,394, falling to roughly $1,925, $1,425, $892, and $322 in years two through five.
Above or below the line? It's a below-the-line deduction that's still available to non-itemizers. It's claimed on the new Schedule 1-A and flows to Form 1040 line 13b, after your AGI — so it reduces taxable income but not AGI, and anything keyed to AGI (IRMAA, most state returns) is unchanged. You must report the vehicle's VIN on the return.
Working overtime or earning tips? The same law added separate deductions — see the no tax on overtime calculator and the no tax on tips calculator. 65 or older? There's the $6,000 senior bonus deduction. Itemizing in a high-tax state? It also raised the SALT deduction cap to $40,000.
A worked example: Priya buys a new SUV
Priya is single, with a MAGI of $90,000. She buys a new, US-assembled SUV and finances $40,000 at 6.5% APR over 60 months (five years). Here's how the deduction works for her:
- First-year interest: her payment is about $783 a month, and the first 12 payments include roughly $2,394 of interest — only the interest counts, not the principal she pays back.
- Deductible amount: $2,394 is well under the $10,000 cap, and her $90,000 income is under the $100,000 phase-out line, so all $2,394 is deductible.
- Federal tax saved: that $2,394 comes off income in her 22% bracket, so it lowers her federal tax by about $527 ($2,394 × 22%) — not $10,000, and not the full $2,394.
- It shrinks each year: interest is front-loaded, so her year-two deduction is about $1,925 and keeps falling as the loan is paid down.
If Priya's income were over $100,000, she'd lose $200 of deduction for every $1,000 above the line — so timing matters near the threshold.
Common questions
How much can I deduct? Up to $10,000 of interest per return per year (2025–2028), phased down by $200 per $1,000 of MAGI over $100,000 ($200,000 joint), never below zero.
Is it a $10,000 credit? No — it's a deduction. The saving is the deduction times your marginal rate: about $527 on $2,394 of interest in the 22% bracket.
Do used cars or leases qualify? No. New vehicles only (original use begins with you), and lease financing is excluded — including buying your car at the end of a lease.
How do I check US final assembly? Decode your 17-character VIN at the free NHTSA VIN Decoder (plant of manufacture) or read the "Final Assembly Point" on the window sticker.
Do I have to itemize? No. It's available to non-itemizers, claimed on Schedule 1-A after AGI — but it does not reduce your AGI.
What is MAGI? Modified adjusted gross income is your adjusted gross income plus a few add-backs, mainly foreign-income exclusions — for almost everyone it's the same as your AGI. It's the income figure the phase-out uses.
What is filing status? It's the category you file under — single, married filing jointly, married filing separately, or head of household. Only a joint return gets the $200,000 phase-out threshold; everyone else (including married filing separately, which is allowed here) uses $100,000.
Is anything saved or uploaded? No. The tool is fully client-side — your numbers never leave your browser.
Sources: Public Law 119-21 §70203, 26 USC §163(h)(4) (Cornell LII); IRS, tax deductions for working Americans and seniors and Schedule 1-A; Thomson Reuters, 2025–2028 vehicle loan interest deduction; Center for Agricultural Law and Taxation, proposed regulations; Bipartisan Policy Center, how the auto-loan interest deduction works.