Car Loan Interest Deduction Calculator
Estimate the new car loan interest deduction created by the One Big Beautiful Bill Act (OBBBA). Enter your annual auto-loan interest, filing status, and MAGI, and answer a few eligibility questions to see your above-the-line deduction (up to $10,000) after the income phaseout, for tax years 2025 through 2028.
Formula reviewed for accuracy. Our methodology & sources
Car Loan Interest Deduction Calculator
tax calculator
How It Works
The One Big Beautiful Bill Act created a temporary above-the-line deduction for interest on a qualifying personal-use auto loan, in effect for tax years 2025 through 2028. Because it is above-the-line, you can claim it whether you take the standard deduction or itemize. The figures here are verified against IRS/OBBBA guidance. Eligibility is strict, and failing any one test means no deduction. The vehicle must be new — used vehicles are excluded. Its final assembly must be in the United States. It must have a gross vehicle weight rating (GVWR) under 14,000 pounds and be secured by a first-lien loan. The loan must have originated after December 31, 2024, and the vehicle must be for personal use, not business or fleet use. Leases are excluded. If you refinance a qualifying loan, the deduction is preserved up to the remaining principal. You must report the vehicle identification number (VIN) on your return. Once eligible, the deduction equals your annual car-loan interest, capped at $10,000 per return. It then phases out for higher earners: for every $1,000 (or part of $1,000) of modified adjusted gross income (MAGI) above $100,000 for single and head-of-household filers, or $200,000 for joint filers, the deduction drops by $200. Because the reduction is $200 per $1,000, the deduction is fully gone $50,000 above the threshold — at $150,000 MAGI (single/HoH) or $250,000 (joint). In plain English: subtract the threshold from your MAGI, divide by 1,000 and round up, then multiply by $200 to get the reduction. Worked example: a single buyer paid $2,500 of interest on a new, US-assembled car with a 2026 loan, MAGI $85,000. All eligibility tests pass, the interest is below the $10,000 cap, and MAGI is under $100,000, so the full $2,500 is deductible. Married filing separately is disqualified. This is an estimate for planning only and is not tax advice.
Formula
If any eligibility test fails → deduction = $0 Otherwise: capped interest = min(interest, $10,000) Phaseout = $200 × ceil(max(0, MAGI − threshold) ÷ 1,000) Deduction = max(0, capped interest − phaseout)
Examples
New US-assembled car, $2,500 interest, single, $85,000 MAGI
All tests pass and MAGI is below $100,000, so the full $2,500 is deductible.
Used vehicle — not eligible
A used vehicle fails the "new vehicle" requirement, so the deduction is $0 regardless of interest paid.
Frequently Asked Questions
Which vehicles qualify for the car loan interest deduction?
Only new vehicles — used cars are excluded. The vehicle must have final assembly in the United States, a gross vehicle weight rating (GVWR) under 14,000 pounds, and be for personal use. Motorcycles, RVs and similar vehicles may qualify if they meet the rules, but business or fleet vehicles and leased vehicles do not.
Does the loan have to be new too?
The loan must have originated after December 31, 2024, and be a first-lien loan secured by the vehicle. Loans that predate 2025 do not qualify. If you refinance a qualifying loan, the deduction is preserved, but only up to the remaining principal of the original qualifying loan.
How much interest can I deduct?
Up to $10,000 of car-loan interest per return per year, subject to the income phaseout. Interest above $10,000 is not deductible, and higher-income taxpayers receive a reduced amount or none at all.
When does the deduction phase out?
It is reduced by $200 for every $1,000 (or part of $1,000) of MAGI above $100,000 for single/HoH filers or $200,000 for joint filers. It is fully phased out $50,000 above the threshold — at $150,000 (single/HoH) or $250,000 (joint) MAGI.
Do leased vehicles qualify?
No. Leases are excluded. The deduction applies only to interest on a loan you take out to purchase the vehicle, where the loan is secured by a first lien on that vehicle. Lease payments are not loan interest and do not qualify.
What do I need to report on my tax return?
You must report the vehicle identification number (VIN) of the qualifying vehicle on your return. Keep records of the interest paid (your lender should provide a statement) and documentation showing the vehicle meets the new, US-assembly, and weight requirements.
Can I claim it if I file married filing separately?
No. Married filing separately (MFS) is disqualified. As with the other OBBBA deductions, married taxpayers generally must file jointly, and a valid Social Security number is required on the return.
How long is this deduction available?
It is temporary, applying to tax years 2025 through 2028. Unless Congress extends it, it sunsets after 2028. The caps and thresholds are based on current IRS/OBBBA guidance and may be updated.
Sources
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