Auto Loan Interest Tax Deduction Calculator
For Tax Year 2025 (filing in 2026) · OBBBA Schedule 1-A, Part IV
According to CBS News, approximately 4 million American car owners qualify for this new tax deduction. Under the One Big Beautiful Bill Act, you can deduct up to $10,000 in auto loan interest on new, US-assembled vehicles. According to NPR, this could save qualifying taxpayers $1,200 to $2,200 per year.
Your Information
RequiredYour Modified Adjusted Gross Income from all sources.
Vehicle Eligibility
RequiredLoan Interest
Up to $10,000Total auto loan interest paid this tax year. Check your lender's 1098 form or annual statement.
Key Rules for the Auto Loan Interest Deduction
- NEW vehicles only — used, certified pre-owned, and leased vehicles do not qualify
- US-assembled — VIN must indicate US assembly (starts with 1, 4, or 5)
- Maximum $10,000 — interest above this amount is not deductible
- Phase-out — deduction reduced at $100K+ MAGI (single) or $200K+ (MFJ)
- Below-the-line — reduces taxable income, not AGI or FICA
What is the Auto Loan Interest Tax Deduction?
The auto loan interest deduction is a new provision under the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025. It allows taxpayers to deduct up to $10,000 per year in interest paid on auto loans for qualifying vehicles. This is reported on IRS Schedule 1-A, Part IV (Lines 22-30).
According to CBS News, approximately 4 million car owners already qualify for this deduction in the 2025 tax year. The average new car buyer with a 72-month loan at 6.5% APR could deduct approximately $2,500 to $3,500 in first-year interest.
Who Qualifies?
Three requirements must be met:
- New vehicle: The vehicle must be new (not used, pre-owned, or CPO)
- US-assembled: The vehicle must be assembled in the United States. You can check this via the VIN — if the first character is 1, 4, or 5, it was assembled in the US
- Financed with a loan: You must have an auto loan with interest payments. Cash purchases and leases do not qualify
Income Phase-Out
The deduction phases out for higher earners. According to the IRS, the phase-out thresholds are:
- Single / HoH / MFS: $100,000 MAGI
- Married Filing Jointly / QSS: $200,000 MAGI
The phase-out uses ceiling rounding: $100 reduction for every $1,000 (or partial $1,000) of MAGI above the threshold. The deduction is fully eliminated at $200,000 (single) or $300,000 (MFJ).
How Much Can You Save?
Example: $40,000 Car, $75,000 Income
- Loan amount: $35,000 at 6.5% APR, 72 months
- First-year interest: ~$2,180
- MAGI: $75,000 (below threshold — no phase-out)
- Tax bracket: 22%
- Tax savings: ~$480/year
Example: $55,000 Truck, $90,000 Income
- Loan amount: $48,000 at 7% APR, 72 months
- First-year interest: ~$3,220
- MAGI: $90,000 (below threshold — no phase-out)
- Tax bracket: 22%
- Tax savings: ~$709/year
How to Check if Your Vehicle is US-Assembled
The easiest way to check is your Vehicle Identification Number (VIN). The first character of the VIN indicates the country of assembly:
- 1, 4, or 5 = United States
- 2 = Canada
- 3 = Mexico
- J = Japan
- K = South Korea
- W = Germany
Many popular models are assembled in the US including Toyota Camry (Georgetown, KY), Honda Accord (Marysville, OH), Tesla Model 3/Y (Fremont, CA), Ford F-150 (Dearborn, MI), and Chevrolet Silverado (Fort Wayne, IN). You can verify assembly location via the NHTSA VIN decoder at vpic.nhtsa.dot.gov/decoder.
Does This Affect FICA?
No. Like other OBBBA deductions, the auto loan interest deduction is a below-the-line deduction that only reduces federal income tax. FICA taxes (Social Security 6.2% + Medicare 1.45%) are not affected.
Sources & Methodology
Frequently Asked Questions
Can I deduct interest on a used car loan?
No. Only interest on loans for NEW vehicles qualifies. Used, pre-owned, and certified pre-owned vehicles are not eligible for this deduction.
What if my car was made by a foreign brand but assembled in the US?
The requirement is US assembly, not US brand. Many foreign-brand vehicles are assembled in the US: Toyota Camry (KY), Honda Accord (OH), Hyundai Sonata (AL), BMW X5 (SC). Check your VIN — if it starts with 1, 4, or 5, you qualify.
Can I deduct lease payments instead of loan interest?
No. This deduction only applies to loan interest on a purchased vehicle. Lease payments do not qualify. However, if you lease a vehicle for business use, you may be able to deduct lease payments as a business expense on Schedule C.
Is there a maximum vehicle price or loan amount?
No. There is no cap on the vehicle price or loan amount. The cap is on the interest deduction — maximum $10,000 per year. Whether your car costs $25,000 or $80,000, you can deduct up to $10,000 in annual loan interest.
Can I combine this with the EV tax credit?
Yes. The auto loan interest deduction is separate from the Clean Vehicle Tax Credit (up to $7,500 for new EVs). If you finance a new, US-assembled EV, you could potentially claim both benefits.
Where do I find my auto loan interest amount?
Your lender should provide a year-end statement or Form 1098 showing total interest paid. You can also check your lender's online portal or call customer service. If you don't have this information, use our loan calculator above to estimate.
What form do I use to claim this deduction?
Claim it on IRS Schedule 1-A, Part IV (Lines 22-30). The total from Line 38 flows to Form 1040, Line 13b. Your tax software should calculate this automatically.
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