Home ›
Tax › Car Loan Interest Deduction
Car Loan Interest Deduction Calculator (2025)
New for 2025: deduct up to $10,000/yr of car loan interest — no itemizing. This tool checks if your vehicle qualifies, amortizes your loan, and applies the income phase-out.
Updated for tax year 2025 · OBBBA · loans originated after Dec 31, 2024
If any eligibility box is unchecked, the deduction generally does not apply. Final-assembly location is the most-missed rule — verify it on the vehicle's window sticker or VIN decoder before relying on this. Educational estimate, not tax advice.
Worked example
A $38,000 loan at 7.5% APR over 60 months has a monthly payment of about $761. First-year interest is roughly $2,630 — well under the $10,000 cap — so if the vehicle qualifies and income is below the phase-out, the full ~$2,630 is deductible in year 1. Interest (and the deduction) shrinks each year as the balance falls.
How the calculation works
- Amortization: standard fixed payment = P·r / (1 − (1+r)⁻ⁿ), where r is the monthly rate. We sum the interest portion of each payment within the selected loan year.
- Cap: deductible interest = min(year's interest, $10,000).
- Phase-out: begins at $100,000 (single) / $200,000 (joint) MAGI; reduced $100 per $1,000 over.
- Eligibility: new, personal-use, US-final-assembly vehicle on a post-2024 loan. All three must hold.
FAQ
Does a used car qualify?
No. Only new vehicles for personal use with US final assembly on loans originated after Dec 31, 2024.
How do I check final assembly?
The window sticker (Monroney label) lists final assembly point; or decode the VIN. A US assembly plant is required.
Is the whole payment deductible?
No — only the interest portion, not principal. The deductible amount falls each year.
→ Add this to the full OBBBA Savings Suite
People also ask
How much car loan interest can I deduct?
The new deduction created by the One Big Beautiful Bill Act lets you deduct up to $10,000 of qualified vehicle loan interest per year for tax years 2025 through 2028. Only the interest portion of your payments counts, the loan must be for a qualifying personal-use vehicle, and the amount phases down once your income passes a threshold. This calculator amortizes your loan to isolate the interest and applies the phase-out; the figures here are general information, not tax advice.
Is there a tax deduction for car loan interest in 2026?
Yes. The car loan interest deduction applies to tax years 2025, 2026, 2027, and 2028 unless Congress changes the law. To claim it in 2026 the vehicle and loan must meet the same rules as in 2025, including personal use, a loan taken out after December 31, 2024, and final assembly in the United States. Check current IRS guidance for the year you file, as this is general information rather than tax advice.
Is it true that the IRS allows a $10,000 deduction for a vehicle?
Yes, but it is a deduction for loan interest, not for the price of the vehicle. Under the 2025 tax law you can deduct up to $10,000 per year of interest paid on a qualifying new-vehicle loan, and it is available whether or not you itemize. Most borrowers pay far less than $10,000 in annual interest, so the actual deduction is usually the real interest amount from your amortization schedule, which this tool computes.
Who gets the new $6,000 tax break?
The $6,000 figure refers to a separate provision of the same 2025 law: an additional deduction for taxpayers age 65 or older, available for tax years 2025 through 2028. It is per qualifying person, so a married couple who are both 65 or older can each claim it, and it phases out at higher incomes. It is unrelated to the car loan interest deduction, though an eligible taxpayer can claim both; treat this as general information, not tax advice.