Car Loan Interest Deduction Calculator

The 2025 tax law created a temporary deduction for interest on loans for new cars assembled in the United States. For tax years 2025 through 2028, you can deduct up to $10,000 of car loan interest a year, even if you take the standard deduction. This calculator estimates your savings, including the income phase-out.

What this calculator does

Enter the amount financed, interest rate, loan term, the year the loan started, your modified adjusted gross income (MAGI), filing status, federal marginal tax rate and whether the car qualifies. It shows:

• the federal tax saved in the first full year,
• the interest paid in the first 12 months,
• the deduction allowed after the phase-out, and
• the total tax saved through 2028.

The formula in plain English

Yearly interest comes from the loan's payment schedule. Interest is highest in the first year and falls as you pay the loan down.

Phase-out reduction = $200 for each $1,000 (or part of $1,000) of MAGI above $100,000 ($200,000 for joint filers).

Deduction = the smaller of yearly interest and $10,000, minus the phase-out reduction, but not below zero.

Tax saved = deduction × your federal marginal tax rate.

Total through 2028 adds up each eligible year's tax savings, from the year the loan started through 2028.

A worked example

Alex, a respiratory therapist, buys a new U.S.-assembled SUV in 2026, financing $40,000 at 6.9% for 60 months. Alex is single with a MAGI of $95,000 and is in the 22% bracket.

• Interest in year one: about $2,540.
• MAGI is under $100,000, so there's no phase-out.
• Deduction: about $2,540.
• Tax saved in year one: about $560.
• Total saved through 2028: about $1,340.

If Alex's MAGI were $120,000, the limit would drop by $4,000, more than the interest paid, so the deduction would be zero.

Why it matters at each career stage

If you're: Resident / fellow

Many residents' incomes fall under the phase-out range, so the deduction can help if you need a new car. But a reliable used car often costs less overall, even without the deduction.

If you're: Employed

For many attendings and higher earners, the phase-out eliminates the deduction. For nurses, therapists and other staff below the thresholds, it can trim a few hundred dollars a year off taxes.

Don't let the tax break drive the decision

The deduction lowers the cost of borrowing, but it doesn't make a car loan free. At a 22% tax rate, $1 of interest still costs you about 78 cents after tax. Choose the car and loan that fit your budget first, then take the deduction as a bonus.

Compare total cost. Use the car loan calculator to see the full payment and interest.

Shop the rate. A lower rate saves more than the deduction.

Check assembly location. Many popular models are assembled in the U.S., but not all versions of a model are.

Keep your paperwork. Keep the loan documents, the window sticker and the lender's year-end interest statement.

Timing and the end date

The deduction is scheduled to apply to interest paid in 2025 through 2028. A loan that starts in 2026 has three years of eligible interest; a loan that starts in 2028 has one. Congress could extend or change the rule, so check before relying on it for later years.

Next, see your full car loan payment, check your marginal tax rate, and fit the payment into your budget.