The new budget bill which recently was signed into law introduces a tax deduction of up to $10,000/year on interest paid for new auto loans from 2025 through 2028. Here are the highlights:
• It only applies to vehicles assembled in the U.S.
• It applies whether you itemize or take the standard deduction.
• Only new (younger than one year) cars, trucks, SUVs, minivans, or motorcycles qualify.
• The deduction phases out based on modified adjusted gross income (MAGI). The phase-out starts at $100K single filer/$200K joint filer, and fully phases out at $150K/$250K.
• With an average new car price of $48K and an interest rate around 8.6%, a typical buyer would pay roughly $2,000/year in interest on a 5-year loan. That could mean about $400 in annual tax savings (though actual savings would depend on your tax rate).
• Again, it only applies to new, U.S. assembled vehicles, so most imports and many EVs/hybrids don’t qualify.
• Used cars are excluded entirely.
• It is only for personal-use vehicles – commercial vehicles do not qualify.
• At the same time, the bill repeals existing EV tax credits and adds annual fees of $250 for EVs, $100 for hybrids.
The bottom line: if you’re buying a new, American-made vehicle and fall within income limits, expect a modest tax benefit—about $300-400 per year. But the deduction is narrow: it doesn’t help with imports, used cars, or EV credit loss, and those cost increases could erode your savings.