Possible Software Bug – New Car Loan Interest Deduction Phaseout

[TravisV07]

Hello — I believe there may be a calculation logic issue in TurboTax related to the new car loan interest deduction.

Based on TurboTax guidance, the MAGI phaseout reduces the maximum allowable deduction, not the interest paid. When a taxpayer is within the phaseout range and the actual interest paid is below the phased-down cap, the full interest paid should still be deductible.

Currently, TurboTax appears to return a $0 deduction in this scenario, while allowing a deduction equal to the phased-down maximum when a much larger interest amount is entered. This suggests the phaseout is being applied to the interest paid rather than to the maximum deduction.

I believe this may represent a calculation bug and would appreciate escalation to the technical team for review.

[AmeliesUncle]

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@TravisV07 wrote:

Based on TurboTax guidance, the MAGI phaseout reduces the maximum allowable deduction, not the interest paid.

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I'm not sure what the TurboTax guidance says, but the Law, Proposed Regulation and Schedule 1-A indicate the phaseout reduces the allowable amount (usually the interest paid), not the maximum amount.

[Schmima2]

I agree. I was starting my taxes today. MFJ within the phaseout range, yet TurboTax online is returning a $0 tax deduction. Agree a technical escalation is warranted.

[baabalicious]

I'm seeing the same thing. Under the phaseout threshold, MFJ, it gives me a congratulations message with the value in green, but the value is $0.

[NorthernPines]

I'm fairly certain this is, indeed, a software bug on TurboTax's end.

As per their own guidance, under the Videos section, "Video: One Big Beautiful Bill: New Car Loan Interest Deduction (Part 4)"

"At $200 for every $1,000 over the limit, rounded up, that works out to $2,600 off your deduction, assuming you paid at least $10,000 in interest, your maximum deduction is $10,000 minus $2,600, which equals $7,400."

Their calculations are currently deducting from the interest paid, plus the maximum allowable deduction.

[MarilynG1]

The car loan interest deduction worked in my test returns for both TurboTax Desktop and TurboTax Online today.  Make sure you have a valid VIN.  You may want to delete the Schedule 1-A in FORMS and step through the interview in this section again. 

In TurboTax Online, you can delete your Cache and Cookies after deleting the form, then step through the section again.  Here's How to Delete Forms in TurboTax Online. 

Here's more on the Car Loan Interest Deduction.

@baabalicious 

[AmeliesUncle]

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@NorthernPines wrote:

I'm fairly certain this is, indeed, a software bug on TurboTax's end.
that works out to $2,600 off your deduction

assuming you paid at least $10,000 in interest

Their calculations are currently deducting from the interest paid, 

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Yes, that example would be $2600 off the the deduction

Did you pay $10,000 or more of interest?

Yes, the deduction is off interest paid.  In that example, if you paid $2600 or less of interest, and the deduction was reduced by $2600, your deduction would be $0.