Updated Car Loan Tax Break for Republicans: Eligible Vehicles and Approved Purchasers
The recently passed "One Big, Beautiful Bill" (OBBB) has introduced a new tax break for U.S.-assembled vehicles, while ending the federal EV tax credit for new electric vehicles and used EVs after September 30th of this year. One of the key features of the new tax legislation is the car loan interest deduction.
This deduction applies to new vehicles purchased with loans originating between 2025 and 2028. To qualify, the car must be new, for personal use, and meet a "final assembly" in the United States requirement. Eligible vehicles include cars, minivans, vans, SUVs, pickup trucks, or motorcycles, weighing less than 14,000 pounds.
Vehicles that are used, assembled abroad, or types such as ATVs, trailers, or campers do not qualify. The deduction allows buyers to write off up to $10,000 per year in auto loan interest, without the need to itemize deductions. It's worth noting that most imported vehicles, subject to the new 25% tariff, won't meet this U.S. assembly requirement and will not be eligible for the car loan interest deduction.
The deduction phases out for individuals with incomes above $100,000 and couples above $200,000, with complete phaseout beyond certain thresholds. If a qualifying vehicle loan is refinanced, interest on the refinanced amount remains eligible for the deduction.
Some advocates see the measure as a way to incentivize buying vehicles with final U.S. assembly. Rep. Bill Huizenga called the deduction "a win for American taxpayers, auto workers, and Michigan." Proponents of the car loan interest deduction argue that it is structured as an above-the-line benefit, allowing taxpayers to claim it even if they claim the standard deduction on their federal returns.
Electric vehicles could qualify for the proposed car loan interest deduction, provided they meet the same requirements as other vehicles under the OBBB. However, it's worth taking the time to run the numbers, shop around for the best financing, and make sure your car purchase truly fits your needs and budget.
It's important to keep in mind that the price of the car, interest rates, insurance, upkeep, and any new fees all add up quickly when buying a car. It's also worth noting that recent tariffs could play a role in pushing prices even higher, even for models assembled in the U.S. Some foreign models have seen increases of $5,000 to $10,000 due to Trump's auto tariffs. Global supply chains also affect domestically produced automobiles, some facing added costs of about $2,000 to $3,000.
The auto loan interest tax deduction is just one part of the extensive tax reforms included in the OBBB. The legislation primarily extends or makes permanent tax breaks from Trump's 2017 Tax Cuts and Jobs Act. The tax break will start with purchases made in 2025 and run through 2028.
Data show that Trump's auto tariffs introduced in 2025 are already driving up car prices across the U.S. The 25% tariff on imported vehicles and parts has reportedly pushed the price of an average new vehicle up by 2.5% in April. As always, it's crucial to stay informed and make the best financial decisions when it comes to purchasing a new vehicle.
[1] IRS Fact Sheet on Car Loan Interest Deduction [2] Congressional Research Service Report on OBBB Car Loan Interest Deduction [3] Joint Committee on Taxation Estimate of OBBB Provisions [4] House Ways and Means Committee Summary of OBBB Car Loan Interest Deduction [5] Tax Policy Center Analysis of OBBB Car Loan Interest Deduction
- The new tax legislation, known as the "One Big, Beautiful Bill" (OBBB), has introduced a car loan interest deduction for U.S.-assembled vehicles, but ended the federal EV tax credit for new and used electric vehicles.
- Eligible vehicles for this deduction, applicable from 2025 to 2028, are new, personally used cars, minivans, vans, SUVs, pickup trucks, or motorcycles, weighing less than 14,000 pounds, provided they meet the final assembly requirement in the United States.
- Some foreign models may not qualify for the car loan interest deduction due to the new 25% tariff on imported vehicles. However, electric vehicles can potentially qualify, based on the same requirements as other vehicles under the OBBB.
- The automotive industry, politics, general news, finance, and even the EV sector should keep a close eye on these developments, as they significantly impact the car-buying decisions of taxpayers and the overall industry.
