Free Tax Tool

Car Loan Interest Deduction Calculator

Check whether your new car loan qualifies, estimate your 2026 interest deduction after the income phase-out, and see how much federal income tax it saves.

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Amount financed

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months
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Estimate of your total income for the year

Eligibility checklist

Estimated 2026 car loan interest deduction

Estimated federal income tax saved

$567.74

Estimated first-year interest
$2,580.66
After the $10,000.00 cap
$2,580.66
Income phase-out reduction
-$0.00
Car loan interest deduction (Schedule 1-A)
$2,580.66
Your federal tax bracket
22%

Estimate only. The deduction is reduced by $200 for each $1,000 (or part of $1,000) of MAGI over $100,000.00. It lowers federal income tax only and is available for tax years 2025 through 2028 whether or not you itemize. You must report the vehicle's VIN on Schedule 1-A. Loan mode estimates interest over the first 12 payments. Use the interest shown on your lender statement for the actual tax year.

How the car loan interest deduction is calculated

  1. Confirm the loan qualifies: a new, U.S.-assembled personal vehicle, a loan taken out after 2024, and secured by the vehicle (not a lease).
  2. Add up the interest paid during the year and apply the $10,000 cap.
  3. Subtract $200 for each $1,000, or part of $1,000, of modified AGI over $100,000 ($200,000 for joint filers).
  4. Your savings are the federal income tax on your taxable income minus the tax after the deduction.

Example: a single filer finances $40,000 at 7% APR for 60 months. The monthly payment is about $792, and the first 12 payments include about $2,580.66 of interest. With $85,000 of modified AGI there is no phase-out, so the full amount is deductible. After the $16,100 standard deduction, taxable income is $68,900, which is in the 22% bracket, so the deduction saves about $567.74 in federal income tax.

For your actual return, use the interest shown on your lender's year-end statement, since it depends on when your loan started.

Frequently asked questions

Is car loan interest tax deductible in 2026?

Yes, for qualifying loans. For tax years 2025 through 2028 you can deduct up to $10,000 a year of interest on a loan for a new, U.S.-assembled personal vehicle, if the loan was taken out after December 31, 2024. The deduction phases out above $100,000 of modified AGI ($200,000 for joint filers).

Does a used car qualify?

No. The original use of the vehicle must start with you, so used cars do not qualify even if the loan is new. Eligible vehicles are personal-use cars, minivans, vans, SUVs, pickup trucks, and motorcycles with a gross vehicle weight rating under 14,000 pounds.

How do I know if my car was assembled in the United States?

Check the window sticker, which lists the final assembly point, or enter your VIN in the NHTSA VIN decoder. A VIN starting with 1, 4, or 5 means the vehicle was made in the U.S., but final assembly location is what counts, so confirm it. You must report the VIN on your return to claim the deduction.

Does a car lease qualify?

No. Lease payments are not loan interest, so leased vehicles do not qualify. The deduction requires a purchase loan secured by a lien on the vehicle.

Do I need to itemize to deduct car loan interest?

No. You claim it on Schedule 1-A, and it is subtracted whether you take the standard deduction or itemize. It reduces federal income tax only.

What if I refinance my car loan?

Interest on a refinanced loan generally still qualifies if the original loan qualified and the new loan is secured by the same vehicle. Interest on any amount borrowed above the refinanced balance generally does not count.

Can I use this for a business vehicle?

No. This deduction is for personal-use vehicles only. Interest on a vehicle used for business is handled under the normal business expense rules instead, such as on Schedule C.

How is the income phase-out calculated?

The deduction is reduced by $200 for each $1,000, or part of $1,000, of modified AGI over $100,000 ($200,000 married filing jointly). For example, a single filer with $105,500 of MAGI is $5,500 over, which rounds up to 6 steps, so the deduction is cut by $1,200. Married couples filing separately cannot claim it.

Sources

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