A new tax law called the "One Big Beautiful Bill Act" was passed by Congress and signed by President Trump on July 4, 2025.
This law lets people deduct up to $10,000 per year in car loan interest paid on qualifying auto loans.
Who Qualifies?
- When did you get your loan? The deduction applies to loans taken out between January 1, 2025, and December 31, 2028.
- Type of car: Only new, personally-owned vehicles that were built in the United States qualify. Used cars and leases do not qualify.
- Purpose: The car must be for personal use, not business.
How Much Could You Save?
While you could deduct up to $10,000 a year, most people will not reach that amount. To get the maximum deduction, you’d need a car loan of about $112,000, which is much higher than most car loans.
For the average new car loan in 2025 (about $43,000), people usually pay around $3,000 in interest the first year. This means most people could deduct up to $3,000 from their taxable income for that year.
Because this deduction lowers your taxable income (not your actual tax bill), most people will only save around $500 or less in taxes for the first year—depending on their tax bracket.
Over a typical six-year car loan, you might deduct several thousand dollars total and save a few hundred dollars per year. It’s helpful, but not a huge financial change.
Are There Income Limits?
Yes. If you earn more than $100,000 a year ($200,000 for married couples), the deduction starts to go down. If your income is above $150,000 ($250,000 for couples), you won’t be able to use this deduction at all.
Which Cars Qualify?
- Only new cars built in the U.S.
- The car must weigh less than 14,000 pounds.
- Used cars, leases, and vehicles built outside the U.S. do not qualify.
Who Benefits Most?
People who buy expensive, luxury cars built in the U.S., and have incomes that qualify, will get the most from this deduction. But this is a pretty small group.
Should You Change How You Buy a Car?
While any tax break helps, this new deduction probably shouldn’t change how you buy a car. Don’t buy a more expensive car just for the tax savings—it’s usually not worth it.
Smarter Ways to Buy a Car
- Choose a car that fits your needs and budget.
- Try to get the best price you can.
- If savings are important, consider used or certified pre-owned cars (just note these do not qualify for this tax deduction).
- Before you buy, check how much you’d actually save with the tax break—most people will only see small savings.
Law Status
This tax deduction is already part of the law and applies only to new car purchases from 2025 to 2028. Always make sure your buying decisions are right for your own situation.
Bottom Line
This new tax deduction can help with your taxes, especially if you buy a new, expensive, U.S.-built car and your income qualifies.
But for most people, the savings are modest. The best strategy is still to buy a car you can afford and that fits your needs.
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