How the numbers are built
Methodology
Direct answer: Qualified interest from every loan that passes the checklist is added together, capped at $10,000 per return, then reduced by $200 for each $1,000 (or fraction) of Schedule 1-A MAGI over $100,000 ($200,000 if married filing jointly). Interest deducted on Schedule C, E, or F is excluded first. Estimated tax savings multiply the deduction by a marginal rate (auto-suggested from brackets, overridable). This is a deduction, not a credit.
Tax rules last verified October 31, 2026. The interactive calculator on the home page implements the same functions covered by the unit tests below.
Multiple loans on one return
IRC §163(h)(4) and Schedule 1-A apply one annual dollar cap per return, not per vehicle. Each loan is tested for eligibility. Interest from loans marked “no” is left out. Interest from loans that pass (or are left “not sure”) is summed. The sum is then limited to $10,000 before the phase-out. See IRS Topic No. 505 and the Schedule 1-A worksheets.
$10,000 cap
After combining qualifying interest and subtracting nonqualified amounts and any interest you will deduct on Schedule C, E, or F, the worksheet takes the smaller of that total or $10,000. Citation: IRC §163(h)(4); 2025 Schedule 1-A line 24; 2026 draft Schedule 1-A line 30.
Phase-out rounding
If MAGI exceeds the threshold, subtract the threshold, divide the excess by $1,000, and round up any fraction to the next whole number (a $1 excess is one block). Multiply that whole number by $200. Subtract the product from the capped amount, not below zero. Thresholds: $100,000 for single, head of household, married filing separately, and qualifying surviving spouse; $200,000 for married filing jointly. Citations: IRC §163(h)(4); Schedule 1-A phase-out lines; final regulations published September 8, 2026.
Schedule C, E, or F exclusion
Interest you deduct (or will deduct) as a business or rental expense on Schedule C, E, or F is not qualified passenger vehicle loan interest on Schedule 1-A. Enter that amount in the calculator so it is removed before the cap. Citation: IRC §163(h)(4) and the Schedule 1-A instructions’ treatment of interest already deducted elsewhere.
Filing-status thresholds
- Married filing jointly: $200,000
- All other statuses on this site: $100,000
How savings are computed
Estimated federal income-tax savings = deductible amount × marginal rate. The rate may be typed in, or auto-estimated from ordinary federal brackets for the selected tax year (Rev. Proc. 2024-40 for 2025; Rev. Proc. 2025-32 for 2026, reused for 2027–2028 until updated) using MAGI as a rough taxable-income proxy. MAGI is not taxable income; override the rate when you know your bracket. Savings ignore credits, state tax, AMT, and self-employment tax.
Worked examples
Single — $2,000 interest, $101,000 MAGI
Excess $1,000 → 1 block × $200 = $200 reduction → deduction $1,800.
Married filing jointly — $10,000 interest, $230,000 MAGI
Excess $30,000 → 30 × $200 = $6,000 reduction → deduction $4,000.
Head of household — same math as single threshold
$2,000 interest, $101,000 MAGI → $1,800. HoH does not use the joint threshold.
Married filing separately
Uses the $100,000 threshold, not $200,000.
Public test-case table
These cases are asserted in the repository’s unit tests. UX-only cases (invalid VIN, unable to verify) are listed after the table.
| Case | Status | MAGI | Interest | Expected deduction |
|---|---|---|---|---|
| $2,000 interest, $101,000 MAGI, single $1,000 over the $100,000 threshold → 1 block × $200 reduction. | Single | $101,000.00 | $2,000.00 | $1,800.00 |
| At the $100,000 single threshold No phase-out at or below the threshold. | Single | $100,000.00 | $2,000.00 | $2,000.00 |
| Threshold + $1 (single) Any positive excess rounds up to at least one $1,000 block. | Single | $100,001.00 | $2,000.00 | $1,800.00 |
| Phase-out endpoint single ($150,000 MAGI, $10k interest) 50 × $200 = $10,000 reduction; deduction is zero. | Single | $150,000.00 | $10,000.00 | $0.00 |
| Phase-out endpoint MFJ ($250,000 MAGI, $10k interest) Joint threshold $200,000; 50 blocks wipe a full $10,000 cap. | Married filing jointly | $250,000.00 | $10,000.00 | $0.00 |
| MFJ partial phase-out $30,000 over → 30 × $200 = $6,000 reduction. | Married filing jointly | $230,000.00 | $10,000.00 | $4,000.00 |
| Head of household uses $100,000 threshold Only married filing jointly uses $200,000. | Head of household | $101,000.00 | $2,000.00 | $1,800.00 |
| Married filing separately uses $100,000 threshold MFS is not the joint threshold. | Married filing separately | $101,000.00 | $2,000.00 | $1,800.00 |
| Two loans totaling over $10,000 Cap is $10,000 per return, not per loan. | Single | $90,000.00 | $6,000.00 + $6,000.00 | $10,000.00 |
| Zero interest Nothing to deduct. | Single | $80,000.00 | $0.00 | $0.00 |
| Used vehicle (original use fails) Used vehicles are not applicable passenger vehicles. | Single | $80,000.00 | $3,000.00 | $0.00 |
| Loan originated on or before December 31, 2024 Indebtedness must be incurred after December 31, 2024. | Single | $80,000.00 | $3,000.00 | $0.00 |
| Exclude interest deducted on Schedule C Interest already deducted on Schedule C, E, or F is not QPVLI. | Single | $80,000.00 | $4,000.00 (less $1,500.00 Sch. C/E/F) | $2,500.00 |
- Invalid VIN format: Client rejects VINs that are not 17 characters or that contain I, O, or Q before calling NHTSA.
- Unable to verify (NHTSA miss / no plant country): Result state is “Unable to verify.” Checklist stays “Not sure” until the label or a later decode confirms final assembly.
Sources
- Public Law 119-21, §70203 (July 4, 2025). The One, Big, Beautiful Bill Act. Section 70203 added IRC §163(h)(4), amended §63(b), and added §6050AA.
- Final regulations, Car Loan Interest Deduction (Sept. 8, 2026). Treasury Decision published at 91 FR. Effective November 9, 2026. Treas. Reg. §§1.163-16 and 1.6050AA-1 apply to tax years 2025–2028.
- IRS Topic No. 505, Interest expense. IRS summary of the 2025–2028 deduction, the $10,000 cap, first-lien requirement, and U.S. final assembly.
- 2025 Schedule 1-A (Form 1040). Part I MAGI lines 1–3 and Part IV lines 22–30. Line 38 is the total additional deductions.
- 2026 draft Schedule 1-A (created June 16, 2026). Draft — do not file. Part IV is lines 28–36. Line 44 goes to Form 1040 line 13a on this draft. Line numbers can change.
- 2025 Instructions for Form 1040. Line 13b comes from Schedule 1-A, line 38. The Schedule 1-A instructions define QPVLI, personal use, and the phase-out.
- Revenue Procedure 2025-32. 2025 standard deduction as amended by OBBBA, and the inflation-adjusted 2026 basic and additional standard deduction.
- Instructions for Form 1098-VLI (Rev. December 2026). IRS continuous-use instructions labeled December 2026 (HTML). Use for calendar year 2026 and later until superseded. PDF: irs.gov/pub/irs-pdf/i1098vli.pdf. About page last reviewed/updated by IRS on October 1, 2026. Who files, the $600-per-loan threshold, boxes 1–7.