New Car Loan Interest

Katelynicole

Why does the new car loan interest deduction calculation not match all of the articles I have read? I have a car loan that qualifies, but when I enter the information in FreeTaxUSA, it says the deduction is $0. The MAGI is over $100,000, and the filing status is married filing separately. The MAGI is $114,841, and the interest paid was $2,773. Based on what I am reading, the max that could be deducted is $7,000 ($10,000 - (15 x $200), so I should be able to deduct the whole thing. But on FreeTaxUSA, it says I can't deduct anything because the $2,773 is less than $3,000 (15 x $200). I looked at Schedule 1-A, and what FreeTax has done does follow the instructions, but I am confused because I thought the phaseout worked differently.

MatthewD

Hello Katelynicole,

When you are calculating the phase out for the car loan interests, you cannot start from the $10,000 maximum limit and start from there. Instead, you must start from the car loan interest you do have, which is $2,773, and then apply the phase out from that amount.

If your phase out is $3,000, for example, then you do not have $7,000 of car loan interests that you can deduct.

Using this example, if your phase out is $3,000, and your car loan interests paid is $2773, then the phaseout applied against your car loan interests amount begins at $2773, not the $10,000, meaning you do not have any car loan interests since the phaseout fully reduce your allowable interest to 0.