CarCostByState

Car Loan Interest Deduction Calculator (2026)

Estimated deduction for 2026

$2,000

Lowers your federal income tax by about $440 at the 22% rate.

Filing status

For most people, the adjusted gross income on Form 1040 line 11b.

Car loan interest

From your lender's year-end statement or Form 1098-VLI.

Used only to estimate the tax you save.

Does your car and loan qualify?

Does your car and loan qualify?

Bought new
Final assembly in the US
Loan taken out after 2024, secured by the car
Mostly personal use
Interest you paid
$2,000.00
Deduction
$2,000.00
Tax saved at 22%
$440.00

From 2025 through 2028, you can deduct up to $10,000 a year of interest on a loan for a new, US-assembled car bought for personal use, even if you take the standard deduction. The deduction shrinks by $200 for each $1,000 of income above $100,000 ($200,000 if married filing jointly).

By . Checked against IRS sources and the statute on .

The rules at a glance

Tax years
2025 through 2028
Maximum deduction
$10,000 per tax return, whatever your filing status
Income limit
Reduced by $200 for each $1,000 (or part of it) of modified adjusted gross income above $100,000, or $200,000 on a joint return. With the full $10,000, it runs out at $150,000 and $250,000.
Type
A deduction, not a credit: it lowers taxable income, so it saves tax at your marginal rate. You can claim it with the standard deduction.
Where to claim
Schedule 1-A, Part IV, with the car's VIN. Without the VIN, no deduction is allowed.
Lender statement
Lenders that receive $600 or more of interest in a year report it on Form 1098-VLI.

Who qualifies

  • The car is new: its original use starts with you. A used car does not qualify.
  • Final assembly took place in the United States. The plant of manufacture is in the VIN; check it with the NHTSA VIN decoder or the label on the car.
  • It is a car, minivan, van, SUV, pickup truck or motorcycle with a gross vehicle weight rating under 14,000 lb.
  • The loan was taken out after December 31, 2024, to buy the car, and is secured by a first lien on it.
  • You expect to use the car for personal purposes more than half the time.
  • Leases do not qualify, and neither does a lease buyout. A refinance qualifies only up to the balance of the original loan.
  • Interest on amounts financed for negative equity from a trade-in or for cash back does not count.

Worked example from the IRS

A single filer pays $7,000 of qualifying interest and has modified adjusted gross income of $124,200. That is $24,200 over the $100,000 limit, which counts as 25 steps of $1,000, so the $7,000 is reduced by $5,000. The deduction is $2,000. At a 24% tax rate, it lowers federal income tax by about $480.

Facts and result from 26 CFR 1.163-16(h)(3), Example 2; the tax saving is our illustration.

How we calculate this

Deduction = the smaller of your interest and $10,000, minus $200 × the number of $1,000 steps (rounded up) by which your modified adjusted gross income exceeds $100,000, or $200,000 on a joint return, and never below zero. Tax saved = deduction × the rate you choose.

When you estimate from a loan, we total the interest from a standard amortization schedule for the payments that fall in the tax year. Your lender's statement has the actual figure, and the deduction counts only interest on qualifying debt.

The estimate ignores state income tax and interactions with other deductions. The full method is on our methodology page.

Sources

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