Car Loan Interest Deduction Calculator
Estimate the 2025-2028 car loan interest deduction: your 2026 interest from your actual loan, the $10,000 cap, the income phase-out and your federal tax saved.
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This calculator estimates the federal car loan interest deduction created by the One Big Beautiful Bill Act for tax years 2025–2028. It amortizes your specific loan to estimate the interest you'll actually pay during 2026, applies the $10,000 cap and the income phase-out, and shows the real federal tax savings (not just interest times your tax rate).
Federal Tax Saved
$449
Interest Paid in 2026
$2,043
Phased Out
$0
Your Loan & Income
Front-loaded interest
Like a mortgage, an auto loan's interest is highest in its earliest months and falls every payment after that. A loan you're 6 months into pays noticeably more interest in the next 12 months than one you're 40 months into.
Deduction & Tax Breakdown
| Estimated monthly payment | $693 |
| Interest paid across 2026 (amortized) | $2,043 |
| Deduction before phase-out (capped at $10,000) | $2,043 |
| Amount removed by the income phase-out | −$0 |
| Deduction you can claim | $2,043 |
| Taxable income without the deduction | $53,900 |
| Taxable income with the deduction | $51,857 |
| Federal tax without the deduction | $6,570 |
| Federal tax with the deduction | $6,121 |
| Federal tax saved | $449 |
How the Car Loan Interest Deduction Works
The One Big Beautiful Bill Act (P.L. 119-21) created a temporary federal income tax deduction for tax years 2025–2028 on interest paid on a qualifying new-vehicle loan. It is available whether or not you itemize. See the IRS guidance on the car loan interest deduction.
The Formula
($200,000 MAGI threshold if married filing jointly)
A Worked Example
Take this calculator's defaults: a $35,000 loan at 7% APR for 60 months with 6 payments already made before Jan. 1, 2026 (a loan that started mid-2025), and $70,000 in other income for a single filer. The monthly payment is about $693. Amortizing the loan forward from month 6 through the 12 payments that land in 2026 gives roughly $2,043 in interest paid during the year, well under the $10,000 cap. MAGI of $70,000 is well under the $100,000 phase-out threshold, so the full amount is deductible. After the $16,100 standard deduction, taxable income falls from $53,900 to about $51,857. Federal tax drops from $6,570 to about $6,121, roughly $449 saved since both amounts land inside the same 22% bracket in this example ($2,043 × 22% ≈ $449).
Who Qualifies
- New vehicle, original use starting with you. No used or previously-titled vehicles.
- Final assembly in the United States. This is a specific-VIN fact, not a brand assumption; check the window sticker or VIN decoder.
- Loan originated after December 31, 2024, secured by a first lien on the vehicle.
- Personal use. A vehicle used for business doesn't qualify for this deduction.
- Your MAGI is under the phase-out ceiling (roughly $150,000 single or $250,000 joint) for the full $10,000 cap to fully phase out.
What This Doesn't Cover
- This is a federal income tax deduction only. It doesn't reduce state tax, sales tax, or the vehicle's price.
- The amortization estimate assumes a standard fixed-rate, fixed-term loan with equal monthly payments and no extra principal payments.
- This tool estimates MAGI as your other income with no adjustments. Your actual MAGI may differ.
This is an estimate for planning, not a substitute for professional advice. Confirm your specific vehicle's eligibility and check current IRS guidance or talk to a CPA or enrolled agent.
Common Questions
?Does my car have to be an EV to qualify?
No. The deduction applies to any new personal-use vehicle with final assembly in the United States (gas, hybrid, or electric) as long as the loan and vehicle meet the other requirements. It is not badged as an EV incentive, though it happens to line up with many EV purchases.
?How do I know if final assembly happened in the U.S.?
Final assembly location is a VIN- and plant-specific fact, not something you can assume from the brand. Check the vehicle's window sticker (Part 84 label), VIN decoder, or ask the dealer to confirm before assuming a specific car and trim qualifies.
?Does a used car qualify?
No. The vehicle must be new, with original use beginning with you as the taxpayer. A used or previously-titled vehicle does not qualify even if it otherwise meets every other requirement.
?What if my loan is a lease or unsecured personal loan?
Neither qualifies. The loan has to be secured by a first lien on the vehicle you bought. A lease payment isn't loan interest at all, and an unsecured personal loan used to buy a car doesn't meet the security requirement.
?Can I deduct interest from a loan I took out in 2024?
No. The loan must have originated after December 31, 2024. A loan on the same vehicle refinanced after that date may qualify going forward, but the original loan by itself does not.
About this calculator. Results are estimates for education and planning, based on the inputs you enter and the published formula described above. Everything runs in your browser; nothing you type is sent to us or stored. It is not financial, tax, legal or medical advice. Read the disclaimer and our methodology.
Spotted an error or an out-of-date figure? Tell us and we will correct it and note the change in the update log.