How to use this calculator
- Enter the interest you paid in the tax year, from your lender’s annual statement. Don’t have it? Choose Estimate from my loan and enter the amount financed, APR, term and first payment date.
- Choose the tax year and filing status, and enter your adjusted gross income.
- Confirm eligibility. Only qualifying new vehicles and loans count — see the rules below.
- Read your savings. We apply the $10,000 cap and income phase-out, then run your taxable income through the federal brackets to show the real tax reduction.
Who qualifies for the car loan interest deduction
You can deduct qualified passenger vehicle loan interest for tax years 2025 through 2028 if all of these are true:
- New vehicle: the original use of the vehicle starts with you. Used vehicles don’t qualify.
- Assembled in the U.S.: the vehicle’s final assembly occurred in the United States.
- Loan taken out after December 31, 2024 to buy the vehicle, and secured by a lien on it.
- Personal use: not a business or fleet vehicle.
- Eligible vehicle type: a car, minivan, van, SUV, pickup truck or motorcycle with a gross vehicle weight rating under 14,000 pounds.
- Not a lease, and not a loan from a related party.
- VIN reported on your tax return.
The $10,000 cap and income phase-out
The deduction is capped at $10,000 per return each year. It then shrinks by $200 for each $1,000, or part of $1,000, by which your modified adjusted gross income exceeds the threshold:
| Filing status | Phase-out starts | Fully phased out (for $10,000 of interest) |
|---|---|---|
| Married filing jointly | $200,000 | $250,000 |
| All other filers | $100,000 | $150,000 |
Most car buyers pay far less than $10,000 of interest a year — a $38,000 loan at 6.9% generates roughly $2,000–$2,500 of interest in its first full year — so the cap rarely binds; the phase-out matters more for higher earners.
Worked examples
Single filer, $85,000 AGI, $2,400 of interest (2026). Income is below $100,000, so the full $2,400 is deductible. Taxable income falls from $68,900 to $66,500, all within the 22% bracket, saving about $528.
Married couple, $210,000 AGI, $4,000 of interest (2026). MAGI is $10,000 over the joint threshold, so the deduction is reduced by 10 × $200 = $2,000, leaving $2,000. In the 22% bracket, that saves about $440.
How to claim it
- Report the deduction on Schedule 1-A (Form 1040), which carries it to your Form 1040 as a deduction from taxable income.
- Include the vehicle’s VIN. Keep your purchase contract and the lender’s interest statement.
- Lenders are generally required to report qualifying interest to the IRS and to borrowers; use your lender’s year-end figure when you file.
- State income taxes may not follow the federal deduction — check your state’s rules.
How the calculator works
When you estimate from a loan, we build the amortization schedule and add up the interest on payments falling in the selected tax year. We use the IRS bracket and standard deduction figures for 2025 and 2026; your actual result may differ because of credits, other income, and state taxes. This is an estimate, not tax advice.
Frequently asked questions
What is the new car loan interest deduction?
Do I have to itemize to claim it?
Does a used car or a lease qualify?
How do I know where my car was assembled?
What income is too high for the deduction?
How much will this save me?
Sources
- One, Big, Beautiful Bill provisions — deductions for car loan interest, tips, overtime and seniors — Internal Revenue Service
- Public Law 119-21 (H.R. 1), One Big Beautiful Bill Act — Congress.gov
- VIN decoder — National Highway Traffic Safety Administration
- Rev. Proc. 2025-32 — 2026 inflation adjustments (brackets and standard deduction) — Internal Revenue Service