New Law Lets Many Deduct Auto Loan Interest, but Savings Are Likely Small

President Trump’s domestic policy bill enacted this summer created a new deduction, described in the law as “no tax on car loan interest,” allowing many taxpayers to deduct interest on auto loans for new cars assembled in the United States. The benefit applies between 2025 and 2028 and is limited to individuals with adjusted annual income of $100,000 or less (and $200,000 for joint filers).

It is a deduction, not a refundable credit, so taxpayers must have taxable income to claim it. Industry analyses project the deduction will save taxpayers only a few hundred dollars a year on average. Experts say upper‑middle‑class buyers of new cars stand to gain the most, while lower‑income households—who mainly buy used cars—and people who lease are excluded.

Senator Bernie Moreno, a chief architect of the provision, called it an “immediate relief” from high auto prices and defended excluding used vehicles as a way to renew the nation’s fleet. He said he hopes to address leasers in future legislation. Critics and some analysts warned the tax break may offer only modest relief.

They noted that tariffs and other policies could raise car prices and offset the deduction’s value, and that complex filing rules could mean some eligible taxpayers miss the benefit. Accountants and dealers say the change will add paperwork: sellers may need to provide statements about interest paid, and consumers will have to determine a vehicle’s place of final assembly to qualify.

Key Topics

Politics, President Trump, Bernie Moreno, Cato Institute, I.r.s, Hyundai