Car loan interest deduction calculator

What the calculator is doing

The monthly payment is the standard amortised payment for the amount financed, the APR and the term: P × r / (1 − (1 + r)−n), where r is the APR divided by 12 and n is the number of months. Interest is the balance multiplied by the monthly rate, and the rest of each payment pays down principal. Interest is attributed to the calendar year in which the payment is made, which is why a loan taken out in March 2025 shows nine months of interest in 2025.

Then, for each tax year: take the interest paid, cap it at $10,000, work out how far MAGI exceeds the threshold, divide that by $1,000 and round up (1.5 becomes 2, and 0.05 becomes 1), multiply by $200, and subtract. That is exactly the arithmetic on Schedule 1-A, Part IV, lines 23 to 30 - which the calculator shows, line by line, under "Show the math".

If your lender sent you a Form 1098-VLI, use box 1 for the year rather than the calculated figure. The optional override fields do that for you.

Worked example

$40,000 financed at 7.00% for 60 months, starting March 2025, single filer with a MAGI of $85,000:

Nothing here hits the $10,000 cap, and the single-filer threshold of $100,000 means no phase-out. Raise MAGI to $104,500 and the 2025 deduction drops to $981.06 - five steps of $1,000, five times $200.

Questions about the calculator

How is the deduction calculated?

Interest you paid during the tax year on a qualifying loan, capped at $10,000, then reduced by $200 for each $1,000 (or part of $1,000) of MAGI above $100,000 - or above $200,000 on a joint return. The result goes on Schedule 1-A, Part IV, lines 23-30.

Does the cap apply per year or per loan?

Per year and per return. You can deduct up to $10,000 of qualifying interest in each tax year from 2025 to 2028. If you have two qualifying car loans, the $10,000 is shared between them.

What if my loan runs past 2028?

Only interest paid in tax years 2025 to 2028 is deductible. If your loan lasts into 2029, the interest after 2028 is not deductible under the law as written - and only $7,500 of indebtedness taken out in 2028 is covered from 2029 onwards, which for a normal car loan is academic because the deduction window closes anyway.

Which income figure do I use?

MAGI for the car loan deduction is the amount on Form 1040 line 11 plus lines 12 to 14, minus line 15 - the same figure used for the student loan interest deduction. Foreign earned income exclusions and the housing exclusion are added back on lines 12 to 14.

Is the deduction worth it if I take the standard deduction?

Yes. This is a below-the-line deduction that you get whether or not you itemise - it sits with the other "additional deductions" on Schedule 1-A rather than with itemised deductions on Schedule A. It does not reduce your adjusted gross income, so it does not move you in or out of other phase-outs.

Tax sources

1. IRC §163(h)(4), added by the One Big Beautiful Bill Act of 2025, Pub. L. 119-21, §70203 (the car loan interest deduction) — accessed 2026-10-07.
2. T.D. 10054, final regulations under 26 CFR §1.163-16 and §1.6050AA-1, 91 FR (September 8, 2026); effective November 9, 2026 — accessed 2026-10-07.
3. Proposed regulations REG-113515-25 (91 FR 67, January 2, 2026) and IRS news release IR-2025-129 (December 31, 2025) — accessed 2026-10-07.
4. IRS Schedule 1-A (Form 1040), Part IV "No Tax on Car Loan Interest", lines 22-30, and the IRS explainer for Schedule 1-A — accessed 2026-10-07.
5. IRS Topic No. 505, Interest expense — accessed 2026-10-07.
6. IRS Notice 2025-57 (2025 lender reporting transition relief) and Form 1098-VLI, Vehicle Loan Interest Statement — accessed 2026-10-07.

We link to primary sources: the statute, the regulations, IRS forms and instructions, and NHTSA's own vehicle data. Where those sources do not settle a question, we say so rather than guess.