Car Loan Interest Deduction Calculator

How the car loan interest deduction works

For tax years 2025 through 2028 you can deduct the interest on a loan for a new, American-assembled personal vehicle, up to $10,000 a year, even if you take the standard deduction. This car loan interest deduction calculator does two things the IRS form cannot: it works out how much interest your loan actually charges in each calendar year, and it then applies Schedule 1-A (Form 1040), Part IV, line by line:

1. Take the interest paid in the year, capped at $10,000 (line 24).
2. Subtract $100,000 from your modified AGI ($200,000 if married filing jointly) (lines 25–27).
3. Divide the excess by $1,000 and round up to a whole number (line 28).
4. Multiply by $200 and subtract that from the capped interest (lines 29–30).

Worked example

A $40,000 loan at 7% APR for 60 months costs $792.05 a month. With the first payment in January 2026 the interest is $2,580.66 in 2026, $2,080.13 in 2027 and $1,543.41 in 2028; the $1,318.68 paid in 2029 and 2030 is no longer deductible because the provision ends after 2028. A single filer with a MAGI of $85,000 deducts all of it, $6,204.20 over three years, worth $1,364.92 in the 22% bracket. At a MAGI of $105,400 the excess is $5,400, which rounds up to 6 steps, so $1,200 comes off and the 2026 deduction is $1,380.66.

The phase-out rounds up

The tips and overtime deductions on the same schedule round the $1,000 steps down and take $100 per step. The car loan line rounds up and takes $200, so a single dollar over a $1,000 mark costs you $200. The full $10,000 is gone for any single filer above $149,000 of MAGI ($249,000 joint), and $2,000 to $3,000 of interest is gone above $109,000 to $114,000.

What qualifies

Per IRS fact sheet FS-2025-03 the loan must be taken out after December 31, 2024, secured by a lien on the vehicle and used to buy a new vehicle whose original use starts with you, for personal use. The vehicle must be a car, minivan, van, SUV, pickup or motorcycle under 14,000 lb with final assembly in the United States, which you can check on the window sticker or with the NHTSA VIN decoder. Used cars and leases do not qualify. A later refinance of a qualifying loan generally still counts. You must list the VIN on your return.

When the estimate is off

Extra principal payments lower the interest; a payment skipped in December moves interest into the next year. Your lender reports the real figure, so use that at tax time. The tax saved is the deduction times your top bracket; if the deduction pulls you into a lower bracket the saving is a little less. To compare loans, use the interest calculator; to see the brackets, read the 2027 tax brackets guide.