How the car loan interest deduction works
The One Big Beautiful Bill Act created a temporary deduction for interest on a car loan, in effect for tax years 2025 through 2028. It is unusual among personal-interest rules, because interest on consumer car loans has not been federally deductible for decades. The new deduction is also tightly conditioned: it applies only to certain vehicles, only to new loans, and it phases out quickly as income rises. This page explains exactly what qualifies, how the cap and phaseout work, and how the interest is reported to you.
What you can deduct
You can deduct up to $10,000 of qualifying car loan interest per year. The $10,000 cap is the same whether you file single or jointly. If you paid less than $10,000 in qualifying interest, you deduct what you paid. If you paid more, the deduction is limited to $10,000, before the income phaseout is applied. Like the other new deductions, it is above the line, so you can claim it whether you take the standard deduction or itemize.
The vehicle has to qualify
This is where the deduction is easiest to get wrong. To qualify, the loan must be for a vehicle that meets all of the following: it is new, not used; it is bought for personal use, not for a business fleet or resale; its gross vehicle weight rating is under 14,000 pounds, which covers ordinary cars, pickups, SUVs, vans, and motorcycles; and its final assembly took place in the United States. You must report the vehicle identification number, the VIN, on your tax return. The loan itself must be secured by the vehicle, originate after December 31, 2024, and come from an unrelated lender rather than a family member.
US final assembly is the condition people most often misjudge. It is not the same as buying an American brand. Some vehicles from US brands are assembled in Mexico, Canada, or overseas, while some vehicles from foreign brands are assembled in US plants. The only reliable way to know is to check the specific VIN. The final assembly point is printed on the vehicle's window sticker, the Monroney label, and is encoded in the VIN itself. The calculator above asks you to confirm the vehicle qualifies, because if it does not, none of the interest is deductible no matter how much you paid.
The phaseout is steeper than the other deductions
The car loan deduction phases out faster than the tips and overtime deductions. The $10,000 cap is reduced by $200 for every $1,000 of modified adjusted gross income above $100,000 for single filers and $200,000 for joint filers. A partial $1,000 counts as a whole step. Because the reduction is $200, not $100, the cap disappears over a $50,000 band of income: it reaches zero at $150,000 of MAGI for single filers and $250,000 for joint filers.
A single filer with $130,000 of MAGI is $30,000 over the threshold, which is 30 steps. Thirty steps times $200 is a $6,000 reduction, so the $10,000 cap becomes $4,000. If that filer paid $8,000 of qualifying interest, the deduction is limited to the reduced $4,000 cap. The calculator runs this for you and shows both the reduced cap and how much came off.
How the interest is reported: Form 1098-VLI
Lenders report qualifying car loan interest on Form 1098-VLI, the Vehicle Loan Interest statement, which mirrors the mortgage-interest Form 1098. A lender must issue it to any borrower who paid $600 or more of qualifying interest in a calendar year, by January 31 of the following year. You use the figure on that form as the starting interest amount when you claim the deduction, and the cap and phaseout are applied on top.
There is an important wrinkle for the first year. Because the reporting system was new for 2025, the IRS provided transition relief in Notice 2025-57. For the 2025 tax year, a lender can satisfy its obligation by giving you the interest total through a statement, an online portal, or a regular or annual statement, and you can rely on that figure to claim the deduction even if you did not receive a formal Form 1098-VLI. The dedicated form was finalized in the Federal Register in early 2026 and is the standard document going forward. If you paid car loan interest in 2025 and did not get a Form 1098-VLI, look for the interest total your lender provided by other means.
Reading the calculator output
The result first confirms whether the vehicle qualifies. If it does not, the output says so and shows a $0 deduction, because ineligible vehicles have no qualifying interest. If it does qualify, the output lists the qualifying interest you entered, the deduction cap that applies after any phaseout, the deduction you can claim (the smaller of your interest and the applicable cap), and an estimate of the federal tax the deduction would save at your selected marginal rate. As with any deduction, that saving equals the deduction times your marginal rate, not the full deduction amount.
A worked scenario
Suppose you bought a new, US-assembled SUV in 2025 with a car loan, paid $4,200 of interest during the year, file single, and have $65,000 of MAGI. The income is under the $100,000 threshold, so the full $10,000 cap applies, and $4,200 is below it, so the whole $4,200 is deductible. At a 22 percent marginal rate that is worth about $924. Now raise the income to $130,000. The cap is reduced to $4,000 by the steep phaseout, so the deduction drops to $4,000 even though you paid $4,200. The last $200 of interest is not deductible. This is why the phaseout matters so much for this particular deduction.
Common mistakes to avoid
The most common mistake is assuming a vehicle qualifies by brand rather than checking the VIN for US final assembly. The second is trying to deduct interest on a used vehicle or a lease, neither of which qualifies. The third is forgetting the steep phaseout, which zeroes the deduction at a much lower income than the tips and overtime rules. And as always, do not confuse a deduction with a credit: the headline interest figure is subtracted from income, not from your tax bill dollar for dollar.
Why this runs in your browser
Every calculation happens on your own device. When the page loads, the logic loads with it, so nothing you enter is sent to a server or stored. That keeps your loan and income figures private and makes each estimate instant, and the tool keeps working even if your connection drops after the page loads.
An estimate, not tax advice
This calculator gives an honest estimate of the 2026 car loan interest deduction so you can plan and check your forms. It is not tax advice, it does not file anything, and it cannot confirm your specific vehicle's eligibility or see the rest of your return. Rely on your Form 1098-VLI or lender statement, the vehicle's assembly documentation, and, where needed, a qualified tax professional for the final figures.