Car Loan Interest Deduction Calculator
The interest, the loan behind it, and your income
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Fill in the fields on the left and this updates as you type.
Know what this estimate is based on
- Jurisdiction
- General mathematical model
- Scope and limitations
- Educational estimate only. Confirm the assumptions, current rules, fees, and rounding that apply to your situation before making a decision.
- Source links checked
- Jul 30, 2026
Built and regression-tested by Smart Tools Lab. It has not been individually reviewed by a licensed financial, tax, or legal professional.
How to use
- 01
If your lender has sent Form 1098-VLI, enter the interest you paid in the tax year. If not, leave that field at 0 and enter the loan: amount financed, APR, term, and the month and year of the first payment.
- 02
Enter your modified adjusted gross income, which for this deduction is your AGI plus any foreign or US-territory income you excluded, and your federal marginal tax rate.
- 03
If you are married filing jointly, change the phase-out threshold to $200,000. Every statutory field opens on the single-filer figure, and its label names the joint one.
- 04
Read this year's deduction and the tax it saves, then the MAGI at which it would reach zero.
- 05
Check the eligibility list before claiming anything, then use the year-by-year table for each tax year through 2028 and the interest that falls after the deduction ends.
Formula
Interest counted = the lesser of the year's qualifying interest and $10,000. Excess MAGI = MAGI − $100,000 ($200,000 joint), in whole dollars. Reduction = $200 × the number of $1,000 steps in the excess, where any part of $1,000 counts as a full step. Deduction = interest counted − reduction, but not below zero, and tax saved = deduction × marginal rate. When you enter a loan instead of the interest, each month's interest comes off the amortization schedule and is grouped by the calendar year it falls in, from the first payment date; each year from 2025 to 2028 goes through the same cap and phase-out, with income and tax rate held flat.
Example
A $42,000 loan at 6.35% over 72 months, first payment March 2026, costs $703 a month, and its 10 payments in 2026 carry $2,106 of interest. MAGI of $104,500 is $4,500 over the $100,000 threshold: 5 steps of $200, so the deduction falls by $1,000 to $1,106. At a 22% rate that saves $243 of tax and brings the 6.35% APR to about 5.62% for the year; the deduction would reach zero once MAGI passed $110,000. In 2027 the loan charges $2,174 of interest, for a $1,174 deduction, and in 2028 $1,765, for $765. Across the window the deduction totals $3,045 and saves $670, while $2,572 of the loan's $8,618 of interest falls after 2028 and is not deductible.
Definitions
- Qualified passenger vehicle loan interest
- The statute's name for the interest this deduction covers: interest on a loan taken out after 2024 to buy a qualifying new vehicle for personal use, secured by a first lien on it.
- Modified adjusted gross income (MAGI)
- For this deduction, adjusted gross income plus income excluded under the foreign earned income and US territory exclusions (sections 911, 931 and 933).
- Schedule 1-A
- The IRS schedule, new for 2025, for the deductions on tips, overtime, car loan interest and for seniors. Car loan interest goes in Part IV.
- Form 1098-VLI
- Vehicle Loan Interest Statement: the form lenders use to report qualifying car loan interest of $600 or more received in a year.
- Final assembly
- The plant where a vehicle is finally put together. It must be in the United States, and it can be confirmed from the VIN or the label on the vehicle.
Good to know
A temporary exception to a rule from 1986
For decades, interest on a personal car loan has not been deductible. The Tax Reform Act of 1986 phased out the deduction for personal interest, leaving home mortgage interest and business and investment interest as the main exceptions, joined later by student loan interest. Public Law 119-21, enacted on July 4, 2025, added a new one: for tax years beginning after December 31, 2024 and before January 1, 2029, qualified passenger vehicle loan interest is not treated as personal interest, so it can be deducted. The rule sits in section 163(h)(4) of the tax code, and it runs for exactly four tax years, 2025 through 2028, unless Congress extends it. Two features make it unusual. First, it is not an itemized deduction. It is claimed on Schedule 1-A, Part IV, whether you take the standard deduction or itemize, and it is subtracted after adjusted gross income is figured. That means it lowers taxable income but not AGI, so it does not reduce the income measure its own phase-out uses, or any other AGI-based limit on the return. Second, eligibility turns on the vehicle and the loan rather than on the buyer, and the return must carry the vehicle's identification number. The Treasury and the IRS proposed regulations on January 2, 2026 and issued final regulations, Treasury Decision 10054, published on September 8, 2026 and effective November 9, 2026. The final rules settle points the statute left open, including how refinancing, negative equity and financed add-ons are treated. Lenders that receive $600 or more of qualifying interest in a year report it on Form 1098-VLI, the Vehicle Loan Interest Statement, starting with 2026 interest; for 2025 the IRS gave lenders transition relief, so borrowers may need their own records for that year.
The vehicle and loan tests, item by item
Every condition has to be met; missing one makes the interest ordinary personal interest again. The vehicle must be new in the tax sense: its original use has to start with you, so used vehicles fail, and a vehicle you buy at the end of a lease fails because its original use started with the lessor. It must be a car, minivan, van, sport utility vehicle, pickup truck or motorcycle, manufactured primarily for use on public roads, with at least two wheels, treated as a motor vehicle under title II of the Clean Air Act, and with a gross vehicle weight rating under 14,000 pounds. The final regulations add that a vehicle meeting those requirements is not disqualified for having been designed to provide temporary living quarters. Its final assembly must have taken place in the United States. The final regulations let you rely on the plant of manufacture reported in the vehicle identification number or the final assembly point on the label affixed to the vehicle, and NHTSA's online VIN decoder shows the plant. The brand does not decide this; a foreign brand's car assembled in a US plant can qualify, and a US brand's car assembled abroad does not. The loan must be taken out after December 31, 2024, to buy that vehicle, and it must be secured by a first lien on it. The vehicle must be for personal use, which the final regulations define as an expectation, when the loan is taken out, that it will be used for personal purposes more than 50% of the time. The statute excludes loans for fleet purchases, commercial vehicles, lease financing, vehicles with a salvage title, vehicles bought for scrap or parts, and loans from related parties. Leases never qualify.
How the phase-out works, one $1,000 at a time
The deduction starts at the lesser of the year's qualifying interest and $10,000. That $10,000 is a limit per return, not per person or per vehicle, and it is the same for every filing status. It is then reduced by $200 for each $1,000, or part of $1,000, by which modified adjusted gross income exceeds $100,000, or $200,000 on a joint return. For this purpose MAGI is adjusted gross income plus any income excluded under the foreign earned income exclusion or the exclusions for income from certain US territories. The words or part of $1,000 matter. MAGI of $100,001 is one step over the line and costs the full $200. On the default figures, MAGI of $104,500 is $4,500 over, which is five steps, so the deduction falls by $1,000. With $2,106 of 2026 interest, the deduction is $1,106. The same interest would be phased out entirely once MAGI passed $110,000, because eleven steps take off $2,200. A full $10,000 claim needs fifty steps to disappear and is gone once MAGI passes $149,000 for a single filer, or $249,000 on a joint return. The stepped reduction creates small cliffs. A dollar of income that crosses into a new $1,000 band costs $200 of deduction, which at a 22% marginal rate is $44 of tax. For someone near a band edge, anything that lowers AGI, such as a pre-tax contribution to a workplace retirement plan, can restore part of the deduction. What does not help is the deduction itself: because it is subtracted after AGI, claiming it does not lower MAGI. Married couples filing separately are held to the $100,000 threshold each, so the joint figure applies only on a joint return.
What the deduction is worth over the life of a loan
The deduction lowers taxable income, so what it saves is your marginal tax rate times the deduction, not the deduction itself. On the default loan, a $1,106 deduction for 2026 at a 22% rate saves $243 of federal tax, which brings the loan's 6.35% APR to roughly 5.62% for that year. Interest remains a cost: of the $2,106 paid, $1,863 is still out of pocket. Over the life of a loan the picture depends on two schedules that run against each other. Interest on an amortizing loan falls every year as the balance falls, while the deduction window closes after 2028. The default loan, $42,000 at 6.35% over 72 months with a first payment in March 2026, charges $2,106 of interest in its ten 2026 payments, $2,174 in 2027 and $1,765 in 2028. At the same income and tax rate, the deductions are $1,106, $1,174 and $765, a total of $3,045 that saves $670. The last $2,572 of the loan's $8,618 of interest falls after 2028 and gets no deduction at all. A shorter term moves more of the interest inside the window; a loan signed in 2028 gets almost none. Several details from the final regulations change what counts. Amounts financed with the purchase that are customarily financed, such as sales tax, title and registration fees, service contracts, extended warranties and GAP coverage, are part of the qualifying loan. Debt that paid off negative equity on a trade-in is not, so its share of the interest is excluded. A refinance keeps qualifying only up to the balance it replaces. Origination charges and prepayment penalties can count as interest if they are interest for federal tax purposes. States decide separately whether to follow the federal deduction.
Frequently asked questions
Is car loan interest tax deductible?
For tax years 2025 through 2028, interest on a loan for a qualifying new vehicle is deductible up to $10,000 a year under Public Law 119-21. Interest on a personal car loan was not deductible before 2025, and the deduction ends after 2028 unless Congress extends it. A vehicle used in a business is covered by different rules.
Which cars qualify?
A car, minivan, van, SUV, pickup or motorcycle with a gross vehicle weight rating under 14,000 pounds, whose original use starts with you and whose final assembly took place in the United States. The plant of manufacture is coded in the VIN, and NHTSA's VIN decoder shows it. Used vehicles and leases do not qualify, and you must expect to use the vehicle personally more than half the time.
What is the income limit?
The deduction falls $200 for each $1,000, or part of $1,000, of modified adjusted gross income over $100,000, or $200,000 on a joint return. A full $10,000 claim is gone once MAGI passes $149,000 single or $249,000 joint, and a smaller claim is gone sooner: on the default loan, $2,106 of 2026 interest reaches zero once MAGI passes $110,000.
Do I have to itemize to take it?
No. It is claimed on Schedule 1-A, Part IV, whether you take the standard deduction or itemize, and the return must show the vehicle's VIN. It reduces taxable income but not adjusted gross income, so it does not lower the MAGI its own phase-out is measured on.
What if I refinanced, or rolled negative equity into the loan?
Under final regulations published on September 8, 2026 (T.D. 10054), a refinance of a qualifying loan keeps qualifying only up to the balance it pays off, and only when the new loan holds a first lien on the same vehicle. A loan taken out before 2025 does not qualify by being refinanced. Debt that paid off negative equity on a trade-in was not borrowed to buy the new car, so its share of the interest does not count, though sales tax, fees, service contracts and GAP coverage financed with the purchase do.
How much will the deduction actually save?
Your marginal rate times the deduction, not the deduction itself. On the default loan, a $1,106 deduction at 22% saves $243 of federal tax in 2026, which brings the loan's 6.35% APR to roughly 5.62% for the year. Across 2026 to 2028 the deduction totals $3,045 and saves $670.
Where do I find the interest I paid?
Starting with 2026 interest, lenders that receive $600 or more of qualifying interest from you in a year report it on Form 1098-VLI, Vehicle Loan Interest Statement. The IRS gave lenders transition relief for 2025, so for that year check your year-end statement or online account. Or leave the field at 0 and let the page figure the interest from the loan.