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For years, homeowners have enjoyed a federal tax deduction for the interest they pay on mortgages. Now, for the first time, car buyers could be getting a similar break — thanks to a sweeping new tax law signed by President Donald Trump.
Starting this year, interest paid on loans for new, U.S.-assembled vehicles may be tax-deductible — a potential game-changer for millions of Americans considering a new car. But before you rush to the dealership, it’s worth understanding who qualifies, what’s included, and whether the savings really add up.
What’s New?
The Auto Loan Interest Deduction is part of a broader tax reform passed this summer. It allows taxpayers to deduct up to $10,000 per year in interest payments on loans used to purchase new vehicles assembled in the United States.
That includes most cars, trucks, SUVs, motorcycles, and vans — as long as they weigh under 14,000 pounds and are used for personal, not commercial, purposes.
Most notably, this deduction is available to all taxpayers, not just those who itemize deductions. That’s a big deal — it means you can claim it even if you normally take the standard deduction.
Who’s Eligible?
Not everyone will qualify. Here are the key rules:
- The car must be new. Used vehicles don’t count.
- It must be assembled in the U.S., regardless of brand.
- The loan must be issued in 2025 or later.
- Your income must fall under the cap.
- Individuals earning under $100,000–$150,000 qualify (phased out).
- Joint filers qualify up to $200,000–$250,000.
- Only personal-use vehicles are eligible — fleet, lease, and commercial vehicles don’t count.
So, for example, a buyer financing a new Honda Accord made in Ohio or a Tesla built in California could benefit — but not if they earn above the income limit or buy a used vehicle.
What Kinds of Cars Are Eligible?
Here’s the twist: It’s not just American companies that qualify — it’s any car assembled in the U.S.
Some examples:
- All Tesla models sold in the U.S. qualify.
- Most Honda and Acura vehicles qualify.
- Many Fords, like the Mustang built in Michigan, qualify — but not all (the Mustang Mach-E is made in Mexico).
- Cadillac vehicles are safe bets.
- Chevrolet and Buick? It depends on the model — many are made abroad.
So if you’re eyeing a specific model, check the vehicle’s final assembly location — it could make a big difference on your tax return.
How Much Could You Save?
Let’s break down the potential savings.
The average new car loan today is about $44,000, financed over six years. At a typical 9.3% interest rate, that could mean around $2,200 in tax savings over four years, according to Cox Automotive.
If you snag a lower interest rate — say 6.5% — your total savings would still be significant, but smaller.
Important: Most loan interest is paid in the first few years of the loan. So, your tax deduction will likely shrink over time as you pay down the principal.
Where It Shows Up on Your Tax Return
Here’s another benefit: This deduction comes before your adjusted gross income (AGI) is calculated.
Why does that matter? Because many states use your AGI to determine state income tax. So lowering your AGI through this deduction might reduce both your federal and state taxes.
Will It Actually Boost Car Sales?
Dealerships hope so.
“We’ve already had customers asking about it,” said Paul Ray, general manager at Bowen Scarff Ford in Washington state. “We’re promoting it on our website now.”
And while it may not be a make-or-break factor for all buyers, it could be the nudge some need to choose financing over leasing — or to buy sooner than later.
“For people on the fence, this might tip the scale,” said Celia Winslow, president of the American Financial Services Association.
Still, some experts say the impact will be modest. “It probably won’t drive huge volume,” noted Jonathan Smoke, chief economist at Cox Automotive. “But it could influence how people choose to pay.”
Final Takeaway
The new auto loan interest deduction is a real, tangible tax break that could save qualifying buyers thousands over the life of their loan. But it’s not automatic, and the rules are strict.
Want to benefit?
Make sure your new car is:
- Assembled in the U.S.
- Purchased for personal use
- Financed through a loan starting in 2025
- Within your income threshold
If all that checks out, this deduction could put some serious cash back in your pocket.
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