Auto Loan Interest Deduction Calculator 2026
The One Big Beautiful Bill Act allows you to deduct up to $10,000 in auto loan interest for vehicles assembled in the United States. Enter your loan details, income, and filing status to see your estimated tax savings.
How the Auto Loan Interest Deduction Works
Starting with tax year 2026, the One Big Beautiful Bill Act introduces a new above-the-line deduction for auto loan interest. Taxpayers who finance a vehicle assembled in the United States can deduct up to $10,000 of the interest paid on their auto loan each year. This deduction applies only to loans originated on or after January 1, 2026, and covers interest payments only, not principal.
The deduction is designed to incentivize the purchase of domestically assembled vehicles and reduce the cost of car ownership for American families. It works similarly to the student loan interest deduction but with a higher cap and different phase-out thresholds.
Phase-Out Rules and Income Limits
Quick Reference (2026 Tax Year)
- Maximum deduction: $10,000 per year
- Applies to: interest on auto loans for US-assembled vehicles
- Loan origination: must be on or after January 1, 2026
- Phase-out starts: $100,000 MAGI (single) / $200,000 (married filing jointly)
- Fully phases out: $150,000 MAGI (single) / $300,000 (married filing jointly)
- Only interest is deductible, not principal payments
The phase-out reduces the deduction proportionally. For example, a single filer with $125,000 MAGI would lose 50% of the deduction because they are halfway through the $100,000 to $150,000 phase-out range. At that income level, the maximum deductible amount drops from $10,000 to $5,000.
Who Qualifies for the Auto Loan Interest Deduction?
To qualify, you must meet all of the following criteria. First, the vehicle must be assembled in the United States. This includes cars, trucks, and SUVs with final assembly in a US plant. Second, the loan must have been taken on or after January 1, 2026. Loans from prior years do not qualify, even if interest is paid in 2026. Third, you must be the borrower on the loan and the vehicle must be for personal use.
The deduction is available regardless of whether you itemize deductions or take the standard deduction. It is an above-the-line deduction, meaning it reduces your adjusted gross income directly.
Example Calculation
Single filer, $80,000 MAGI, $4,500 interest paid
- Interest paid: $4,500 (under the $10,000 cap)
- Phase-out: None (MAGI below $100,000)
- Deductible amount: $4,500
- At 22% marginal rate: $990 tax savings
Auto Loan Interest Deduction vs Other Vehicle Tax Benefits
The auto loan interest deduction is separate from other vehicle-related tax benefits. The federal EV tax credit of up to $7,500 applies to the purchase price of qualifying electric vehicles and is a credit, not a deduction. The auto loan interest deduction applies to any US-assembled vehicle, whether gasoline, hybrid, or electric. You can potentially claim both the EV credit and the loan interest deduction on the same vehicle if it qualifies for both programs.
Unlike the mortgage interest deduction, which requires itemizing, the auto loan interest deduction is an above-the-line deduction. This means you benefit from it even if you take the standard deduction, making it accessible to more taxpayers.