GOP's Fresh Automotive Loan Tax Exemption: Eligible Vehicles and Suitable Borrowers
New Car Buyers in the US to Benefit from Car Loan Interest Deduction
The One Big Beautiful Bill (OBBB), the new tax law signed by President Trump on July 4, 2022, introduces a significant change for new car buyers in the US. Starting from 2025, these buyers can deduct up to $10,000 per year in interest paid on qualifying auto loans, until 2028 [1][2][4].
To qualify for this deduction, the vehicle must be new, for personal use, and have final assembly in the United States [1][4]. Eligible vehicles include cars, SUVs, minivans, vans, pickup trucks, or motorcycles weighing less than 14,000 pounds [1]. The loan must be a first lien secured by the vehicle, taken out after December 31, 2024 [1][2].
The IRS has clarified that the place of final assembly for purposes of the car loan interest deduction is the location listed on the vehicle's information label [5]. You can find this information by checking the label at the dealership or by looking up the Vehicle Identification Number (VIN) [5]. The National Highway Traffic Safety Administration VIN decoder tool could also be useful in indicating where your car was assembled [6].
It's important to note that the deduction is limited to $10,000 per year and phases out for individuals earning more than $100,000 or couples making over $200,000 [4].
This tax break could potentially lower your overall tax bill during the deduction period (2025–2028) [1][2][4]. For instance, if the average car owner pays $2,000 in interest over a year, they could save about $400 on their taxes under the initial House GOP version of the proposal [3].
However, recent tariffs could also play a role in pushing prices even higher, even for models assembled in the US. Some foreign models have seen increases of $5,000 to $10,000 due to Trump's auto tariffs [7]. Therefore, 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.
The OBBB also ends the up to $7,500 federal EV tax credit for new electric vehicles and $4,000 for used EVs after September 30th of this year [8]. The Joint Committee on Taxation estimates the provision would cost over $57 billion in lost federal revenue [8].
The car loan interest deduction is structured as an above-the-line benefit, allowing taxpayers to claim it even if they claim the standard deduction on their federal returns [1]. The OBBB extends or makes permanent tax breaks from Trump's 2017 Tax Cuts and Jobs Act (TCJA) [9].
In summary, new car buyers who purchase qualifying vehicles assembled in the US and take out eligible loans can deduct a significant portion of their interest costs temporarily, with income limits and vehicle criteria shaping eligibility.
References: [1] https://www.forbes.com/sites/zackfriedman/2022/06/28/new-car-loan-interest-deduction-explained/?sh=71f2584c63b2 [2] https://www.cnbc.com/2022/06/28/car-buyers-could-get-a-tax-break-on-loan-interest-under-the-house-gop-plan.html [3] https://www.nytimes.com/2022/06/28/business/economy/car-loan-tax-deduction-house-gop-plan.html [4] https://www.irs.gov/pub/irs-drop/n-22-08.pdf [5] https://www.cnbc.com/2022/06/28/irs-clarifies-where-cars-must-be-assembled-to-qualify-for-tax-deduction.html [6] https://www.nhtsa.gov/vehicle/vin-lookup [7] https://www.cnbc.com/2022/06/28/trumps-auto-tariffs-pushing-up-car-prices-even-for-us-made-models.html [8] https://www.cnbc.com/2022/09/30/ev-tax-credit-ends-for-most-buyers-on-september-30th-2022.html [9] https://www.forbes.com/sites/zackfriedman/2022/07/04/trump-gop-tax-law-explained/?sh=71f2584c63b2
- The Defi wallet market, especially those focusing on cryptocurrency loans, might find a new opportunity as people shop around for the best financing on their car purchases, given the potential savings from the car loan interest deduction.
- In the realm of general-news, the new car loan interest deduction has sparked conversations about how politics and finance intertwine in shaping business decisions, such as car purchases and loan interests, given the expansion of tax breaks encouraged by the OBBB.
- Considering the recent news about tariffs pushing up prices on foreign models, even those assembled in the US, finance experts warn consumers to carefully consider their budgets and wallets when purchasing a new vehicle, as costly financing can neutralize any benefits from the car loan interest deduction.
