Your auto loan details
The remaining principal on your qualifying vehicle loan
Found on your monthly statement or Form 1098-VLI
VINs starting with 1, 4, or 5 = US-assembled. Starts with J, K, W etc. = not eligible.
Deduction result
$2,275 deduction × 22% bracket = $501 saved
Effective interest rate after deduction: 5.07% (was 6.50%)
| Estimated annual interest paid | $2,275.00 |
| OBBBA cap (maximum deduction) | $10,000 |
| Interest after cap | $2,275 |
| 2026 deductible amount | $2,275 |
| Tax saving at 22% bracket | $501 |
What is How to Use the Car Loan Interest Deduction Calculator?
The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, created a new federal income tax deduction for interest paid on auto loans for new US-assembled vehicles. You can deduct up to $10,000 of qualifying vehicle loan interest per year on your federal tax return — even if you take the standard deduction. This above-the-line deduction applies to tax years 2025 through 2028.
How to Use
- Enter your current auto loan balance and annual interest rate (found on your loan statement or 1098-VLI form).
- Enter your estimated MAGI to check if the phase-out applies (starts at $100,000 single / $200,000 married).
- Select your filing status and federal tax bracket to calculate your actual tax saving.
- Review your deduction, after-tax effective interest cost, and estimated savings vs. not claiming.
- Check the VIN prefix guide to confirm your vehicle qualifies as US-assembled.
Why Use This Tool?
Tips & Best Practices
- Check your VIN before assuming your vehicle qualifies — the first digit must be 1, 4, or 5 for US assembly. Use the NHTSA VIN decoder (vpic.nhtsa.dot.gov) to confirm.
- If your loan interest exceeds $10,000 (high-balance loans), the deduction is capped. Consider paying extra principal to reduce future interest while still staying within the deductible range.
- The deduction phases out by $1,000 per $1,000 of MAGI over the threshold — at MAGI $110,000 (single), only $9,000 is deductible; at $200,000 the deduction is gone.
- Claim on Schedule 1-A (above-the-line). Your lender provides Form 1098-VLI; keep your VIN records and purchase date in case of an audit.
- If you also have a home office or SE retirement plan, these AGI reductions could compound — lower AGI from 401k → lower MAGI → larger car loan deduction.
Frequently Asked Questions
Does my car qualify for the loan interest deduction?
Your vehicle must be: (1) new — not used, (2) a passenger vehicle, (3) purchased after December 31, 2024, and (4) finally assembled in the United States. Check your VIN — if the first character is 1, 4, or 5, it was likely US-assembled. Confirm using the NHTSA VIN decoder.
Can I deduct car loan interest if I take the standard deduction?
Yes. The car loan interest deduction is an above-the-line deduction on Schedule 1-A. It reduces your AGI regardless of whether you itemize or take the standard deduction. This is a key advantage over the old mortgage interest deduction which requires itemizing.
What if my MAGI is above $100,000 (single)?
The deduction phases out at 10% per $1,000 of MAGI above the threshold. For example, at $105,000 MAGI (single), your $10,000 maximum deduction is reduced by $5,000 (5 × 10%) to $5,000. At $200,000 MAGI (single), the deduction is fully eliminated.
Do I need Form 1098-VLI to claim the deduction?
Your lender is required to issue Form 1098-VLI (Vehicle Loan Interest Statement) if you paid $600 or more in qualifying interest. Wait for this form before filing. If your lender doesn't provide it, you can still claim the deduction using your own records (loan statements, purchase agreement, VIN documentation).