PiggyCar Loan Interest Deduction (2026)
For the first time in decades, interest on a personal car loan is deductible. The conditions are narrow and the phase-out is fast — check whether yours qualifies.
How this is calculated
Interest on a loan secured by a new, US-assembled vehicle bought between 2025 and 2028 is deductible up to $10,000 a year, against income tax, whether or not you itemise. It falls by $200 for every $1,000 of MAGI above $100,000 ($200,000 jointly) — reaching zero at $150,000 and $250,000. Any business-use share is excluded here because it is already a Schedule C expense.
Worked example: $3,200 of interest on a fully personal vehicle at $85,000 of MAGI is entirely deductible — no phase-out — saving about $704 in the 22% bracket.
Your loan and income
Where it runs out
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Four conditions, and all of them bind
This deduction is genuinely new and genuinely restrictive. The vehicle must be new — a used car is excluded even if it is new to you. Its final assembly must be in the United States, which rules out a great many popular models regardless of the badge on the bonnet. The loan must be secured by the vehicle, so a personal loan or a credit card used to buy a car does not count. And the loan must have been taken out during 2025 to 2028.
You will also need the vehicle identification number on your return, which is the IRS's way of checking the assembly requirement. Confirm final assembly before you buy if the deduction is part of your reasoning — the window sticker states it, and it is not something you can establish afterwards.
It phases out twice as fast as the others
The cap is $10,000 of interest a year, but it starts shrinking at $100,000 of modified adjusted gross income ($200,000 filing jointly) and falls by $200 for every $1,000 above that — double the rate applied to the tips and overtime deductions. The practical effect is a narrow band: the deduction is gone entirely by $150,000 for a single filer and $250,000 for a couple.
Like the other new deductions, it is available whether you itemise or take the standard deduction, and it reduces income tax only.
If you use the car for business
This is where freelancers need to be careful, and where most quick calculators stop. The business-use share of vehicle loan interest is already deductible as a business expense on Schedule C — and has been for years, separately from the standard mileage rate, which covers depreciation, fuel and maintenance but not interest. You cannot deduct the same interest twice, so only the personal-use share is eligible for the new deduction. The calculator above splits them for you.
The business share is usually worth more per dollar, because a Schedule C deduction reduces profit and therefore saves self-employment tax as well as income tax — roughly 14 cents extra per dollar. So a vehicle used 60% for business produces two deductions of different value, and the total is higher than either route alone would give. Our mileage calculator covers the rest of the vehicle deduction, and the Section 179 calculator handles the purchase itself.
Is it a reason to buy a car?
No, and it is worth saying plainly. At the full $10,000 cap in the 22% bracket the deduction saves $2,200 — against interest payments of $10,000. You are still $7,800 worse off than someone who paid cash. It reduces the cost of borrowing you were going to do anyway; it never makes borrowing profitable. The same logic applies here as to any deduction: it is a discount, not a rebate.
Frequently asked questions
Can I deduct interest on a used car?
What's the maximum deduction?
Does a lease qualify?
Can I claim it if I use the car for work?
Do I need to itemise?
How do I prove the vehicle qualifies?
Sources
- IRS — Schedule 1-A published for the new OBBB deductions
- IRS — Schedule 1-A (Form 1040), Additional Deductions
- IRS — Publication 463, Travel, Gift, and Car Expenses
Every formula on this page is checked against an independent implementation before publication. How we check our math →