Car Loan Interest Deduction Calculator
Financed a new, US-assembled car? You could write off up to $10,000 of interest a year — even if you take the standard deduction. See your exact number below.
Enter your loan interest and income — the calculator applies the $10,000 cap and the MAGI phaseout for your filing status.
What Is the Car Loan Interest Deduction?
The One Big Beautiful Bill Act (OBBBA) created a brand-new federal deduction for interest paid on a loan for a new, US-assembled passenger vehicle. Eligible taxpayers can deduct up to $10,000 of interest per year for tax years 2025 through 2028 — and you don't need to itemize to claim it, since it's an above-the-line deduction on the new Schedule 1-A.
How Much Can You Actually Deduct?
Start with whichever is smaller: the interest you actually paid, or the $10,000 annual cap. That figure is then reduced if your income is above the threshold for your filing status.
Phaseout Reduction = 20% × (MAGI − Threshold)
Final Deduction = MAX( $0 , Capped Interest − Phaseout Reduction )
The threshold is $100,000 of MAGI for single and head-of-household filers, and $200,000 for married couples filing jointly. The deduction is reduced by $200 for every $1,000 your MAGI sits above that line — disappearing entirely once you're $50,000 over the threshold.
Does Your Vehicle Actually Qualify?
- It must be new — used vehicles, salvage titles, and demo units don't qualify
- Final assembly must have taken place in the United States (check the vehicle's information label, or look up the VIN)
- The loan must have originated after December 31, 2024 and be secured by a first lien on the vehicle
- The vehicle must be for personal use — fleet, commercial, and most business-use vehicles don't qualify
- Gross vehicle weight must be under 14,000 lbs
- Leases don't qualify — this is for purchase loans only
The MAGI Phaseout, Explained Simply
Think of it as losing 20 cents of deduction for every dollar of MAGI above your threshold. A single filer at $100,000 MAGI keeps the full deduction; at $125,000, they've lost $5,000 of it; by $150,000, it's gone completely. The same math applies to joint filers, just starting at $200,000.
Filing Status Matters More Than You'd Think
| Filing Status | Phaseout Starts (MAGI) | Fully Phased Out |
|---|---|---|
| Single / Head of Household | $100,000 | $150,000 |
| Married Filing Jointly | $200,000 | $250,000 |
| Married Filing Separately | Not eligible for this deduction | |
Worked Example
Suppose a single filer paid $12,000 of qualifying interest in 2025 with a MAGI of $120,000. The interest is first capped at $10,000. Their MAGI is $20,000 over the $100,000 threshold, so the deduction is reduced by 20% × $20,000 = $4,000, leaving a final deduction of $6,000. At a 22% marginal rate, that's roughly $1,320 in federal tax savings.
Where to Go From Here
Run the numbers on the loan itself with our auto loan calculator, then plug this deduction into your full return with the income tax calculator. If you're also itemizing, check our SALT deduction calculator for the other big OBBBA change this year.
Frequently Asked Questions
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