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Car Loan Interest Deduction Calculator

Car loan interest deduction calculator

The amount you financed, not the price on the window

Take the price, subtract your down payment and anything you got for your trade-in, and that is the figure on your loan paperwork. A rough number is fine, you can change it at the end and watch the answer update. Only the interest on it is deductible, never the money you borrowed.

Does all of this describe your car and your loan?

Leave any box unchecked and the interest is not deductible. The answer will say which one and why.

These four are the whole test, and most people trip on one of them

They are the conditions Congress wrote into the law, and the deduction needs all four at once. The one people miss is where the car was assembled: it is the plant, not the badge, so a US brand built in Mexico is out and a foreign brand built in Kentucky is in. Check the plant in your 17-character VIN at the free NHTSA VIN decoder, or read the "Final Assembly Point" line on the window sticker. RVs, campers, trailers and ATVs never qualify, whatever else is true.

Working out a different tax year? The rules are the same in all four

The deduction exists for 2025 through 2028 only. The $10,000 cap and the income thresholds are the same every year — they are not indexed for inflation, so the year you pick does not change the answer.

It's the APR on your loan agreement

Type it the way the paperwork writes it: 6.5 for six and a half percent. This is the whole reason the deduction is worth anything, because only the interest counts. If your loan is a 0% deal there is no interest at all, so there is nothing here to deduct.

Why the length matters more than you'd think

We work out the interest in the first full year of the loan from these three numbers. Interest is front-loaded: year one is always the biggest deduction and it shrinks every year after, because you are paying it on a balance that keeps falling. A longer loan spreads the same debt over more months, so you pay more interest in total.

It only matters if you earn over $100,000 ($200,000 filing jointly)

A ballpark is fine. Married and sending in one return together? Add both incomes. Above that line the deduction starts shrinking, by $200 for every $1,000 you are over. Tax forms measure it against your modified adjusted gross income — that is Form 1040 line 11 for nearly everyone, so if money leaves your pay before tax, into a 401(k) or a health plan, take those amounts off.

How do you do your taxes?

Married filing separately is allowed here, unlike the tips and overtime breaks

Tax forms call this your filing status. Only a joint return gets the $200,000 threshold — single, head of household and married filing separately all use $100,000. The $10,000 cap is one limit per return, so a couple filing together share a single $10,000 between them, while two separate returns get $10,000 each.

Your answer

These are example numbers. Type yours to see your own.

Will my car payment get smaller?

No. Nothing about the loan changes: same payment, same rate, same months. This is money off the income you are taxed on, so it arrives as a bigger refund, or a smaller bill, when you file. You claim it on Schedule 1-A, you can take it without itemizing, and you have to put the car's VIN on the return.

How do I check where my car was assembled?

Two ways, both free. Type your 17-character VIN into the NHTSA VIN decoder and read the plant of manufacture, or find the "Final Assembly Point" line on the window sticker that came with the car. It has to be the United States. Where the brand is headquartered does not matter at all.

The 2025 One Big Beautiful Bill Act lets you deduct up to $10,000 of interest a year on a loan for a new, US-assembled vehicle bought for personal use — for tax years 2025 through 2028. Enter your loan and income to see your estimated first-year interest, how much is deductible after the income phase-out, and what it actually saves you. Everything runs in your browser — nothing is uploaded.

Estimate for general guidance only — not tax advice. The first-year interest assumes a fully amortizing fixed-rate loan and 12 monthly payments in the first year. The tax-saving figure uses the 2026 federal brackets and treats your income as taxed against the standard deduction (married filing separately is estimated with the single table). It does not model state tax, AMT, or your full return. Verify with the IRS or a tax professional, and report the vehicle's VIN on Schedule 1-A.

Does every car loan get a $10,000 write-off? No — read this first

1. It's a deduction, not a credit. The $10,000 is a ceiling on deductible interest, not $10,000 off your tax bill. Your real saving is the deduction times your marginal rate — for a typical first-year interest of about $2,400, a filer in the 22% bracket saves roughly $527, not $2,400.

2. Used cars and leases don't qualify. The vehicle must be new — original use begins with you. Used cars, lease-end buyouts, and any lease financing are out, and so are RVs, campers, trailers, and ATVs.

3. Only loans taken out in 2025 or later. The loan must be incurred after December 31, 2024 and secured by a first lien on the car. A loan you signed in 2024 doesn't qualify even though you're still paying interest on it.

4. It must be assembled in the US. Final assembly has to be in the United States. Check the plant code in your VIN at the free NHTSA decoder, or the "Final Assembly Point" line on the window sticker — the brand's headquarters is irrelevant.

5. Available to non-itemizers. Good news: you don't have to itemize. It's claimed on Schedule 1-A and reduces taxable income after your AGI, so you can take it alongside the standard deduction — but it does not lower your AGI.

How the car loan interest deduction works

The One Big Beautiful Bill Act (signed July 2025) added Internal Revenue Code §163(h)(4), "qualified passenger vehicle loan interest." For 2025 through 2028 you can deduct the interest you pay on a qualifying auto loan, up to $10,000 a year.

Per return, not per vehicle. The $10,000 cap applies to the whole return. A married couple filing jointly still shares one $10,000 limit; two qualifying cars' interest is added together under that single cap. Married filing separately is the exception — each spouse's return gets its own $10,000.

The income phase-out. If your modified adjusted gross income (MAGI) is over $100,000 ($200,000 for a joint return only — single, head of household, and married filing separately all use $100,000), the deduction drops by $200 for every $1,000 (or part of $1,000) above the threshold. Because the reduction comes off your deductible interest after the $10,000 cap, a taxpayer with a full $10,000 is fully phased out at $150,000 of income (single) or $250,000 (joint) — but someone with only $3,000 of interest phases out much sooner, around $114,000.

What counts as interest. Only the interest portion of your payments — not principal, and not the whole payment. Interest is front-loaded, so year one is the biggest deduction and it shrinks every year as the balance falls. For a $40,000 loan at 6.5% over 60 months, first-year interest is about $2,394, falling to roughly $1,925, $1,425, $892, and $322 in years two through five.

Above or below the line? It's a below-the-line deduction that's still available to non-itemizers. It's claimed on the new Schedule 1-A and flows to Form 1040 line 13b, after your AGI — so it reduces taxable income but not AGI, and anything keyed to AGI (IRMAA, most state returns) is unchanged. You must report the vehicle's VIN on the return.

Working overtime or earning tips? The same law added separate deductions — see the no tax on overtime calculator and the no tax on tips calculator. 65 or older? There's the $6,000 senior bonus deduction. Itemizing in a high-tax state? It also raised the SALT deduction cap to $40,000.

A worked example: Priya buys a new SUV

Priya is single, with a MAGI of $90,000. She buys a new, US-assembled SUV and finances $40,000 at 6.5% APR over 60 months (five years). Here's how the deduction works for her:

  • First-year interest: her payment is about $783 a month, and the first 12 payments include roughly $2,394 of interest — only the interest counts, not the principal she pays back.
  • Deductible amount: $2,394 is well under the $10,000 cap, and her $90,000 income is under the $100,000 phase-out line, so all $2,394 is deductible.
  • Federal tax saved: that $2,394 comes off income in her 22% bracket, so it lowers her federal tax by about $527 ($2,394 × 22%) — not $10,000, and not the full $2,394.
  • It shrinks each year: interest is front-loaded, so her year-two deduction is about $1,925 and keeps falling as the loan is paid down.

If Priya's income were over $100,000, she'd lose $200 of deduction for every $1,000 above the line — so timing matters near the threshold.

Common questions

How much can I deduct? Up to $10,000 of interest per return per year (2025–2028), phased down by $200 per $1,000 of MAGI over $100,000 ($200,000 joint), never below zero.

Is it a $10,000 credit? No — it's a deduction. The saving is the deduction times your marginal rate: about $527 on $2,394 of interest in the 22% bracket.

Do used cars or leases qualify? No. New vehicles only (original use begins with you), and lease financing is excluded — including buying your car at the end of a lease.

How do I check US final assembly? Decode your 17-character VIN at the free NHTSA VIN Decoder (plant of manufacture) or read the "Final Assembly Point" on the window sticker.

Do I have to itemize? No. It's available to non-itemizers, claimed on Schedule 1-A after AGI — but it does not reduce your AGI.

Does it lower my state income tax too? It depends on your state. A state that starts from your federal taxable income picks it up unless it adds it back. A state that starts from your federal adjusted gross income does not pick it up on its own, because this deduction comes off after that figure. A state can still choose to allow it. The places we have checked:

  • Arizona: Arizona lets you subtract the federal car loan interest deduction on your 2025 Arizona return (residents claim it on Form 140, not Form 140A or 140EZ). The subtraction stops after 2025: Arizona's 2026 tax law, HB 4168, allows it for 2025 only. (Arizona Revised Statutes 43-1022, paragraph 36, added by HB 4168 (2026))
  • Colorado: Colorado starts from your federal taxable income and does not add this deduction back, so the federal car loan interest deduction lowers your Colorado tax too, for 2025 and 2026. (Colorado State Auditor, report 2026-TE5 (June 29, 2026))
  • District of Columbia: DC does not allow the federal car loan interest deduction on your 2025 DC return. From 2026 it does. The rule is in D.C. Act 26-416, an emergency law in effect until November 11, 2026; the permanent law with the same rule, D.C. Act 26-418, is expected to take effect around November 20, 2026. DC's tax office has not yet published 2026 forms that show this deduction. (D.C. Act 26-416, D.C. Code 47-1803.04(d)(8) and (e)(5))
  • Idaho: Idaho follows the federal tax code as it stood on January 1, 2026, back to 2025, and Idaho's return subtracts the federal Schedule 1-A deductions, so the federal car loan interest deduction lowers your Idaho tax too, for 2025 and 2026. (Idaho HB 559 (2026), Internal Revenue Code conformity)
  • Iowa: Iowa starts from your federal taxable income, and Iowa's Department of Revenue says Iowa follows the federal car loan interest deduction, so it lowers your Iowa tax too, for 2025 and 2026. (Iowa Department of Revenue, impact of the One Big Beautiful Bill Act on employee withholding)
  • Montana: Montana's return counts the federal Schedule 1-A deductions, including car loan interest, when it works out your Montana taxable income, so the federal car loan interest deduction lowers your Montana tax too. No 2026 law has changed that. (Montana 2025 Form 2 instructions, page 7)
  • North Dakota: North Dakota starts from your federal taxable income and follows federal changes automatically, so the federal car loan interest deduction lowers your North Dakota tax too, for 2025 and 2026. (North Dakota 2025 individual income tax booklet)
  • Oregon: Oregon allows the federal car loan interest deduction on your 2025 Oregon return. From 2026 it does not: Oregon's 2026 tax law, SB 1507, adds the interest back, so it no longer lowers your Oregon tax. (Oregon SB 1507 (2026), sections 2 and 10)

We have not checked the other states one by one, so if yours is not listed, ask its tax department.

Does my monthly car payment change? No. The loan, the rate and the payment are exactly the same. The deduction lowers the income you are taxed on, so it arrives as a bigger refund or a smaller bill after you file — never as a smaller payment during the year.

What is MAGI? Modified adjusted gross income is your adjusted gross income plus a few add-backs, mainly foreign-income exclusions — for almost everyone it's the same as your AGI. It's the income figure the phase-out uses.

What is filing status? It's the category you file under — single, married filing jointly, married filing separately, or head of household. Only a joint return gets the $200,000 phase-out threshold; everyone else (including married filing separately, which is allowed here) uses $100,000.

Is anything saved or uploaded? No. The tool is fully client-side — your numbers never leave your browser.

Sources: Public Law 119-21 §70203, 26 U.S. Code §163(h)(4): car loan interest; IRS, tax deductions for working Americans and seniors and Schedule 1-A; IRS, guidance on the new deduction for car loan interest (IR-2025-129); Treasury and IRS proposed regulations, Car Loan Interest Deduction, 91 FR 67 (January 2, 2026).

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