Car Loan Interest Tax Break: Who Qualifies Under The Big Beautiful Bill?

Forbes

09-07-2025

Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors' opinions or evaluations.
Anyone in the market for a car will soon be able to write off fees for their purchase as a tax exemption. The Senate GOP-backed version of Trump's One Big Beautiful Bill Act includes provisions that will make it easier to purchase a new automobile, though not all cars qualify.
The new law stipulates that new auto owners can establish a new tax deduction up to $10,000 for annual interest paid on new car loans from their income. The tax break is temporary and would last from 2025 through 2028. Auto owners won't have to itemize to take advantage of the write-off.
The perk, however, prioritizes individuals who have a modified adjusted gross income of under $100,000, with the deduction value falling off for those who make more and joint filers who make over $200,000. The deduction falls $200 for each $1,000 of income over the thresholds.
To qualify, the car must be new with a final assembly in the United States, which rules out models from popular imports like Nissan and Toyota. Roughly half of the new vehicles sold in America have final assembly in the country, according to Cars.com, and include certain models from brands like Tesla, Volkswagen and Jeep.
While many cars are assembled in America, they still require imported parts. The most 'American-made' cars, according to Cars.com's American-Made Index, are as follows: Tesla Model Y, assembled in Fremont, California, and Austin, Texas
Tesla Model X, assembled in Fremont, California
Tesla Model S, assembled in Fremont, California
Honda Passport, assembled in Lincoln, Alabama
Honda Odyssey, assembled in Lincoln, Alabama
Honda Ridgeline, assembled in Lincoln, Alabama
Volkswagen ID.4, assembled in Chattanooga, Tennessee
Toyota Camry, assembled in Georgetown, Kentucky
Jeep Wrangler, assembled in Toledo, Ohio
Lexus TX 350, assembled in Princeton, Indiana
ATVs, trailers, and campers are not eligible for the new tax deduction.
Cox Automotive's chief economist Jonathan Smoke told CNBC the provision won't make that much of a difference for low-income and middle-class households.
To make the most of the waived interest, one would need to take out a loan of approximately $112,000 to make use of the full $10,000 deduction, says Smoke.
According to Experian data, the average new car loan is $41,720, while the average new car loan interest rate is 6.73%. For loans of over $100,000, brands like Mercedes-Benz, Maserati, Aston Martin, Lamborghini, McLaren, and Porsche would meet the financial criteria, according to CNBC, but many wouldn't even qualify, considering they're foreign imports.
On top of that, most household incomes with new cars lean above-average, with the average household income (HHI) at $140,000 for an EV buyer, $115,000 for a new-vehicle buyer, and $96,000 for a used-vehicle buyer, according to Cox Automotive . It also predicts that 16.3 million new cars will be sold in 2025, but out of the vehicles soon to hit the road, only a few will net their owners a significant number in interest savings.
Realistically, the savings for the average household with this new tax credit will be relatively small, which Smoke noted would clock in at around $500 for the first year, with the value declining year after year.