Schedule 1-A
Car loan interest deduction phase-out
Direct answer: After the $10,000 cap, reduce the deduction by $200 for each $1,000 (or part of $1,000) of Schedule 1-A MAGI over $100,000 ($200,000 if married filing jointly). Any fraction of $1,000 rounds up.
The phase-out does not change the $10,000 cap. It reduces the deduction you would otherwise have after that cap. Section 163(h)(4)(C) reduces the allowable amount by $200 for each $1,000, or portion of $1,000, by which modified adjusted gross income exceeds $100,000. Married filing jointly substitutes $200,000. The reduction cannot go below zero.
Who gets which threshold
The 2025 Schedule 1-A, line 26, says to enter $100,000, or $200,000 if married filing jointly. The 2025 instructions repeat that split: married filing jointly, $200,000; all other filing statuses, $100,000. The final regulations say head of household is in the $100,000 group. Treasury declined to create a separate head-of-household threshold because the statute names only two amounts. Married filing separately and qualifying surviving spouse are also “all other filing statuses.” A joint return does not get two $10,000 caps. The cap is $10,000 per return.
MAGI is Schedule 1-A, line 3. Build it on the MAGI page. Do not subtract the standard deduction first. Do not subtract this deduction. It is not in AGI.
Rounding is up, not down
Line 28 of the 2025 schedule, and line 34 of the 2026 draft, say to divide the excess by $1,000 and, if the result is not a whole number, increase it to the next higher whole number. The forms give the same examples: increase 1.5 to 2, and increase 0.05 to 1. Then multiply by $200.
That is the opposite direction from the tips and overtime worksheets on the same schedule, which tell you to decrease a fraction to the next lower whole number. Copying the tips rounding onto car-loan interest understates the reduction.
Fifty dollars over the threshold is 0.05 of a $1,000 block. It rounds up to one block and reduces the deduction by $200. One cent over the threshold does the same. An excess of exactly $1,000 is one block, not two. An excess of $1,000.01 is two blocks and a $400 reduction.
A full $10,000 deduction is reduced to zero after 50 blocks, because $10,000 divided by $200 is 50, and 50 times $1,000 is $50,000 of MAGI. That point is $150,000 for every status except married filing jointly, and $250,000 for a joint return. Those are not extra statutory thresholds. They are where the arithmetic finishes a $10,000 deduction. If your qualified interest is only $2,000, ten blocks, or $10,000 of excess MAGI, wipe it out. At exactly $110,000 of MAGI, a single filer with $2,000 of capped interest has a deduction of zero.
Worked amounts
Each row assumes the interest is qualified and that nothing was deducted on Schedule C, E, or F. The figures are produced by the same function as the calculator.
| Situation | Filing status | MAGI | Interest | Blocks | Deduction |
|---|---|---|---|---|---|
| Under the threshold | Single | $80,000.00 | $3,200.00 | 0 | $3,200.00 |
| Exactly $100,000 | Single | $100,000.00 | $3,200.00 | 0 | $3,200.00 |
| $50 over, the form’s 0.05 example | Single | $100,050.00 | $3,200.00 | 1 | $3,000.00 |
| One cent over the threshold | Single | $100,000.01 | $10,000.00 | 1 | $9,800.00 |
| $1,500 over, the form’s 1.5 example | Single | $101,500.00 | $10,000.00 | 2 | $9,600.00 |
| Interest above the cap | Single | $90,000.00 | $12,500.00 | 0 | $10,000.00 |
| Joint return, $30,000 over | Married filing jointly | $230,000.00 | $10,000.00 | 30 | $4,000.00 |
| Head of household uses $100,000 | Head of household | $140,000.00 | $5,000.00 | 40 | $0.00 |
| $10,000 deduction reaches zero | Single | $150,000.00 | $10,000.00 | 50 | $0.00 |
| Joint $10,000 deduction reaches zero | Married filing jointly | $250,000.00 | $10,000.00 | 50 | $0.00 |
Two loans are added before the cap. Six thousand dollars on one qualified loan and six thousand on another, with MAGI under the threshold, produces a $10,000 deduction, not $12,000. Interest that fails eligibility never enters that total.
Sources
- 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.
- 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.