How the car loan interest deduction works
The One Big Beautiful Bill Act (OBBBA) created a new above-the-line deduction for interest paid on a loan used to buy a new personal-use vehicle. For tax years 2025 through 2028, you can deduct up to $10,000 of qualified car loan interest per year — and because it is above-the-line, you get it even if you take the standard deduction.
Who qualifies
- The vehicle must be new (original use starts with you) and for personal use.
- The vehicle's final assembly must be in the United States.
- The loan must originate after December 31, 2024 and be secured by the vehicle.
- The deduction phases out above $100,000 MAGI (single) or $200,000 (married filing jointly), reduced by $200 for each $1,000 over the threshold.
- Lease payments, used-vehicle loans, and business fleet vehicles do not qualify.
How to use this calculator
- Enter your loan amount, APR, and term — we compute the interest you actually pay this year using a standard amortization schedule.
- Pick your filing status and estimate your MAGI.
- The result shows your deduction after the cap and phase-out, plus estimated federal savings at your marginal rate.
Frequently asked questions
Do I need to itemize to claim this?
No. It is an above-the-line deduction, so you can claim it alongside the standard deduction.
How do I prove the interest I paid?
Your lender reports it. For tax year 2026 onward, lenders must issue Form 1098-VLI (by January 31 of the following year) showing the interest paid.
How do I know if my car was assembled in the US?
Check the "final assembly point" on the window sticker (Monroney label), or enter your VIN in the free NHTSA VIN decoder.
Does refinancing disqualify me?
Refinanced loans can still qualify, up to the remaining balance of the original qualifying loan.
Does this reduce my state taxes too?
Generally no — this is a federal deduction. Most states have not conformed to it.