How the car loan interest deduction works (2025–2028)
The One Big Beautiful Bill Act (OBBBA) created a new, temporary above-the-line deduction for interest paid on a qualifying vehicle loan — available whether you itemize or take the standard deduction. It's reported on the new Schedule 1-A alongside the other new OBBBA deductions (tips, overtime, and the 65+ senior bonus).
Starting with the 2026 tax year, lenders must send you Form 1098-VLI if you paid $600 or more in qualifying interest — use that figure directly in this calculator.
The rules at a glance
| Rule | Detail |
|---|---|
| What's deductible | Interest paid on a qualifying new-vehicle loan — not the principal |
| Maximum deduction | $10,000 per year |
| Phase-out start (MAGI) | $100,000 single · $200,000 joint |
| Phase-out rate | Drops $200 for every $1,000 over the threshold |
| Fully phased out at | $150,000 single · $250,000 joint |
| Vehicle requirements | New, GVWR under 14,000 lbs, final assembly in the US, >50% personal use |
| Tax years | 2025–2028 (loans originated through Dec 31, 2028) |
Worked example
Say you paid $8,000 in interest on a qualifying new truck loan this year, and your MAGI is $120,000 (single). You're $20,000 over the $100,000 threshold, so the deduction reduces by $200 × 20 = $4,000, leaving a $4,000 deductible amount. At a 22% marginal federal rate, that's roughly $880 in tax savings.
What doesn't qualify
Used vehicles, leased vehicles, vehicles assembled outside the US, and vehicles over 14,000 lbs GVWR are all excluded. If you mostly use the vehicle for business (under 50% personal use), it doesn't qualify for this deduction — though business-use interest may be deductible elsewhere on your return.
Frequently asked questions
How much can I deduct?
Up to $10,000 of interest paid per year, for tax years 2025–2028, subject to the income phase-out above.
Do I need to itemize?
No — this is an above-the-line deduction, available whether you itemize or take the standard deduction.
What if I bought a used car?
Used vehicles and leases don't qualify. Only loans for new, qualifying vehicles are eligible.
Is this an official IRS tool?
No. Calcova is an independent estimator using the enacted OBBBA rules and 2026 federal brackets. Not tax advice — verify with the IRS or a tax professional.
Related calculators
No Tax on Tips calculator → — another OBBBA deduction, up to $25,000 of tips.
No Tax on Overtime calculator → — deduct the overtime premium, up to $12,500/$25,000.