The One Big Beautiful Bill Act created a temporary deduction for car loan interest, but it is far narrower than the headlines suggest. This guide explains which vehicles and incomes actually qualify, how the per-year interest and MAGI phase-out work, and why the deduction is worth the most in a loan's earliest years.

How the deduction works

For tax years 2025 through 2028 you can deduct up to $10,000 of interest paid each year on a qualifying auto loan, claimed on the new Schedule 1-A whether you itemize or take the standard deduction. This calculator builds the loan's amortization schedule from your amount financed, APR, term, and purchase date, then sums the interest that falls in each calendar year. Because auto loans are front-loaded with interest, the deduction is largest in the first year or two and tapers off as the balance falls.

Which vehicles and incomes qualify

Five vehicle tests must all pass: the car must be new (not used), have its final assembly in the United States, carry a GVWR under 14,000 lb, be secured by a first lien, and be used mostly for personal purposes. The loan must also have been taken out after December 31, 2024. Income matters too: the deduction phases out by $200 for every $1,000 of modified AGI above $100,000 (single) or $200,000 (married filing jointly), reaching zero at $150,000 and $250,000. Use the linked NHTSA VIN decoder to confirm your vehicle's plant country.

Limits and what it does not do

This deduction cuts income tax only — it does not reduce Social Security or Medicare (FICA) tax, and it does not turn interest into a refund. It also sunsets after 2028, so interest paid in 2029 and later is not deductible even on a qualifying loan. The estimate applies a single MAGI figure to every year and uses MAGI minus the standard deduction as a proxy for your marginal bracket when you leave the rate on Auto; your actual bracket and MAGI can vary year to year. Confirm your specifics with a tax professional before filing.