Car Loan Interest Deduction Calculator
Check whether your new-car loan qualifies for the OBBBA interest deduction, and estimate how much you can deduct after the income phase-out.
Your loan and income
From your lender's year-end statement or Form 1098.
Determines whether the deduction is reduced.
Used only to estimate your tax savings, not the deduction itself.
Eligibility checklist
Deductible interest
$6,000
Estimated tax savings: $1,320
Cap before phase-out
$10,000
Phase-out reduction
$0
Cap after phase-out
$10,000
Estimate calculated from the numbers you entered. This is not financial, tax, or legal advice — always consult a qualified professional before making significant financial decisions.
How the Car Loan Interest Deduction Calculator works
The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, created a temporary above-the-line deduction for interest paid on qualifying new-car loans, for tax years 2025 through 2028. This tool checks whether your loan meets the eligibility requirements, then estimates how much of your interest you can actually deduct once the income-based phase-out is applied.
The formula
Deduction = min(Interest paid, $10,000 − $200 × (MAGI − threshold) ÷ $1,000)The $10,000 cap shrinks by $200 for every $1,000 your MAGI sits above $100,000 (single) or $200,000 (married filing jointly), reaching $0 at $150,000 / $250,000. Below the threshold, the only limit is the $10,000 cap and how much interest you actually paid.
Worked example
A single filer with a $110,000 MAGI paid $9,000 in interest on a qualifying new, US-assembled car loan taken out in 2026. Their MAGI is $10,000 over the $100,000 threshold, which shrinks the cap by $200 × 10 = $2,000, from $10,000 down to $8,000. Since they paid $9,000 in interest — more than the reduced $8,000 cap — their deduction is capped at $8,000. At a 22% marginal tax rate, that's roughly $1,760 in tax savings.
Common mistakes
- Assuming any new-car loan qualifies — the US-assembly requirement rules out many models, including some built by US automakers overseas.
- Deducting the full loan payment instead of just the interest portion — principal repayment is never deductible.
- Forgetting the phase-out applies to the cap, not your actual interest paid — high earners can still deduct something as long as MAGI is below the completion point.
Frequently asked questions
Is car loan interest tax deductible?
Starting with tax year 2025 through 2028, yes — but only under specific conditions introduced by the One Big Beautiful Bill Act (OBBBA). The vehicle must be new (not used), have its final assembly in the United States, and the loan must have originated after December 31, 2024. It also has to be for personal use, not primarily a business or fleet vehicle. Most used-car loans and loans on imported-assembly vehicles do not qualify.
How much can I actually deduct?
Up to $10,000 of interest paid per year, above-the-line (you don't need to itemize). That cap starts shrinking once your MAGI passes $100,000 (single) or $200,000 (married filing jointly), at a rate of $200 less for every $1,000 of MAGI over that threshold, until it reaches $0 at $150,000 (single) or $250,000 (married filing jointly).
What counts as "final assembly in the United States"?
The plant where the vehicle was actually put together needs to be in the US — not where the company is headquartered, and not where individual parts were made. Many vehicles sold by both domestic and foreign automakers are assembled in the US, and some are not; check the vehicle's window sticker (Monroney label) or VIN for the assembly plant, or ask the dealer directly before you finance.
Does this deduction reduce my Social Security or Medicare taxes?
No. Like the OBBBA tips and overtime deductions, this only reduces your federal income tax — it doesn't change the FICA (Social Security and Medicare) taxes withheld from your paycheck or self-employment tax owed.
What if I refinance an existing car loan?
The "loan originated after 2024-12-31" requirement generally looks at when the loan you're currently paying interest on began — refinancing after that date a loan that originally started earlier may or may not preserve eligibility depending on how the refinance is structured. This is a genuine gray area; if it applies to you, this is worth confirming with a tax professional or the final Schedule 1-A instructions before you count on the deduction.
Sources
What actually moves this number
Specific levers, and roughly what each one is worth. Not “save more” — the things that change the figure above by an amount you can measure.
Confirm the assembly location before assuming you qualify
Eligibility depends on where the vehicle was finally assembled, which is not the same as the brand's nationality. The VIN and the manufacturer's window sticker settle it; assumptions frequently do not.
It is a deduction, not a credit
It reduces taxable income, so it is worth its face value times your bracket — $1,000 of interest is about $220 at 22%, not $1,000. Worth having, not worth choosing a car for.
Check the income thresholds before counting on it
The deduction phases out above defined income levels, and a household just over the line receives less than the headline suggests or nothing at all.
Note the expiry date
The provision is scheduled to end rather than being a permanent feature of the code. A multi-year loan may only produce the deduction for part of its life.
What this calculator does not cover
Every calculator simplifies, and the useful thing is knowing exactly where. These are the specific gaps between this estimate and your real situation:
- Eligibility depends on vehicle assembly location, loan origination date, and income thresholds — conditions that exclude many buyers who assume they qualify.
- It is a deduction, not a credit. It reduces taxable income rather than reducing your tax bill dollar for dollar.
- Only interest on a qualifying new vehicle loan counts. Refinanced loans, leases, and used vehicles are treated differently.
- The provision has a scheduled expiry, so it is not a permanent feature of the tax code.
For anything that turns on an exact figure, use the primary sources below or a qualified professional. How these limits are decided and disclosed is described in the editorial standards.