Car Loan Interest Deduction Calculator
For tax years 2025–2028, deduct up to $10,000 a year of interest on a new personal-use vehicle loan, even if you take the standard deduction. Estimate it below, then see the Schedule C business path if you are self-employed.
1. Personal use: the new 2025–2028 deduction (IRC § 163(h)(4))
Personal Vehicle Loan Parameters
Estimate your deductible interest on a new personal-use vehicle loan under IRC § 163(h)(4).
Do you qualify? The § 163(h)(4) checklist
- New vehicle: Original use starts with you. Used vehicles do not qualify.
- Personal use: The vehicle is for personal use. Leased vehicles do not qualify.
- Vehicle type: A car, minivan, van, SUV, pickup truck or motorcycle with a gross vehicle weight rating under 14,000 lbs.
- Final assembly in the United States.
- Loan: Originated after 31 December 2024 and secured by a first lien on the vehicle. A refinanced loan qualifies only up to the original loan balance.
- VIN: The vehicle identification number must be on your return.
- Cap and phase-out: Up to $10,000 per return per year. The cap falls by $200 for every $1,000 (or part of $1,000) of MAGI over $100,000 ($200,000 if married filing jointly), and reaches $0 at $150,000 ($250,000 joint).
Claim it on Schedule 1-A, Part IV (Form 1040, line 13b). It is a deduction from AGI under § 63(b): it lowers taxable income, not AGI.
2. Business use: Schedule C (IRC § 163(h)(2)(A))
Business Vehicle Parameters (Schedule C)
Calculate the deductible business portion of your loan interest, for self-employed individuals and 1099 contractors. This is the second path. See the personal deduction above first.
Is Car Loan Interest Tax Deductible?
Yes, for tax years 2025–2028, the One Big Beautiful Bill Act (Pub. L. 119-21 § 70203) added IRC § 163(h)(4), a deduction of up to $10,000 a year for interest on a new personal-use vehicle loan. It is claimed on Schedule 1-A, Part IV (Form 1040, line 13b), and it is available whether you itemize or take the standard deduction. It lowers your taxable income, not your AGI.
Before 2025, personal car loan interest was non-deductible under the Tax Reform Act of 1986 (§ 163(h)(1)). That is the old rule. In 2026 there are two paths to deduct vehicle loan interest:
- Personal use, IRC § 163(h)(4): Up to $10,000 a year for 2025–2028, for a new personal-use vehicle with final assembly in the United States, on a loan originated after 31 December 2024 and secured by a first lien. The cap falls by $200 for every $1,000 (or part of $1,000) of MAGI over $100,000 ($200,000 if married filing jointly), and reaches $0 at $150,000 ($250,000 joint).
- Business use, Schedule C (IRC § 163(h)(2)(A)): Self-employed individuals, independent contractors (1099) and sole proprietors can deduct the business portion of auto loan interest, in any year.
IRS Rules: The Personal Deduction (§ 163(h)(4))
To claim the personal deduction, every one of these must be true:
- New vehicle: Original use starts with you. Used vehicles do not qualify.
- Personal use: The vehicle is for personal use. Leased vehicles do not qualify.
- Vehicle type: A car, minivan, van, SUV, pickup truck or motorcycle with a gross vehicle weight rating under 14,000 lbs.
- Final assembly in the United States.
- Loan: Originated after 31 December 2024 and secured by a first lien on the vehicle. A refinanced loan qualifies only up to the original loan balance.
- VIN: The vehicle identification number must be on your return.
- Cap and phase-out: Up to $10,000 per return per year. The cap falls by $200 for every $1,000 (or part of $1,000) of MAGI over $100,000 ($200,000 if married filing jointly), and reaches $0 at $150,000 ($250,000 joint).
Claim it on Schedule 1-A, Part IV (Form 1040, line 13b). It is a deduction from AGI under § 63(b): it lowers taxable income, not AGI. Final regulations are in T.D. 10054 (Treas. Reg. § 1.163-16).
IRS Rules: The Business Path (Schedule C)
Self-employed taxpayers, sole proprietors, independent contractors and LLC owners who use a financed vehicle for commercial purposes can deduct the business portion of the interest:
- Statutory Authority: IRC § 163(h)(2)(A) excludes trade or business interest from personal interest disallowance.
- Reporting Schedule: Claimed on IRS Schedule C (Form 1040), Line 16b (Interest: Other).
- Dual-Use Apportionment: If the vehicle is used for both commercial and personal driving, interest is deductible strictly in proportion to documented business mileage.
The Schedule C Business Mileage Method
When a vehicle is driven for both business tasks and personal use, self-employed taxpayers apportion loan interest based on documented mileage:
Deductible Percentage = Business Miles Driven ÷ Total Annual Miles Driven
For example, if you drove 20,000 total miles in 2026, and 14,000 of those miles were documented business trips (client visits, supply runs, site inspections), your business use ratio is 70%. If you paid $1,800 in auto loan interest over the year, you can deduct $1,260 on Schedule C.
Standard Mileage vs. Actual Expenses Rule
Unlike gasoline, oil changes, and auto insurance (which cannot be deducted if you choose the IRS standard mileage rate), business vehicle loan interest can be deducted alongside the standard mileage rate!
IRS Publication 463 explicitly confirms that self-employed taxpayers claiming the standard mileage deduction may still deduct the business portion of auto loan interest as a separate business expense on Schedule C.