Roughly 100 million Americans are being encouraged to check if they qualify for a new tax credit aimed at those purchasing American-made vehicles.
The One Big, Beautiful Bill Act (OBBA) has established a fresh tax credit allowing Americans to deduct a part of the interest paid on their auto loans starting in 2025. However, this only applies to new cars that are assembled in the United States.
Why is it important
OBBA has rolled out several new tax regulations. According to the Treasury Department, changes like exempting tips and overtime pay, as well as an expanded child tax credit, are expected to boost IRS refunds by about $1,000 per household on average.
This year, over 100 million households are set to receive refunds. For families with two children, the expanded child tax credit could lead to an average tax cut of about $1,700.
New car loan interest deduction
Individuals with incomes of $150,000 or less (or $250,000 for joint filers) may be eligible for this new auto loan deduction.
The criteria specify that the vehicle must be bought new in 2025 and must be assembled in the United States.
If you meet the criteria, you can deduct as much as $10,000 from your taxable income to decrease what you owe.
“As with all things tax-related, this provision is definitely more complex than it seems,” Drew Powers, founder of Powers Financial Group, remarked. “People need to keep in mind that final regulations and IRS guidelines won’t be available until the end of February, which gives tax professionals several weeks to prepare for accurate reporting. This could get complicated.”
Who qualifies for the new auto loan interest deduction?
Per the National Highway Traffic Safety Administration, only around 30% of vehicles sold in the U.S. in 2025 will have their final assembly completed in the country. Eligible vehicles for this credit must be bought for personal use, and the loan should start on or after December 31, 2024.
While around 100 million Americans hold car loans, only a fraction will likely qualify for this new deduction.
How much is the auto loan interest deduction?
In general, Americans can deduct up to $10,000 yearly in interest on a qualified new car loan. You don’t need to itemize deductions, but the vehicle has to be new and assembled in the U.S. for personal use.
Your actual savings will depend, of course, on your marginal tax bracket.
For instance, someone in the 10 percent bracket could potentially save about $1,000, while someone in the 22 percent bracket might save around $2,200.
“The new auto loan interest deduction (limited to $10,000) introduces an interesting dynamic, especially since itemizing isn’t necessary to reap the benefits,” Kevin Thompson, CEO of 9i Capital Group, explained on a podcast. “This is an above-the-line deduction, meaning it directly lowers your taxable income and can have a significantly larger impact compared to traditional deductions.”
How to check if your car qualifies for the new tax credit
To find out if you’re eligible, you’ll need to confirm that the loan began in 2025 or later, the car is new, used for personal purposes, and secured by a lien. You should also check the VIN to ensure final assembly occurred in the U.S. and keep records of the year’s loan interest.
If everything checks out, you may claim up to $10,000 in interest paid when filing your tax return.
People’s opinions
Alex Bean, a financial literacy instructor: “This new deduction for auto loan interest underscores just how difficult it is to afford a vehicle in today’s market. While it might not significantly reduce the cost of buying a car, it offers a slight tax break for middle-income families already grappling with rising interest rates. Taxpayers should keep in mind that the deduction lowers their taxable income, and actual savings will vary according to their income and eligibility.”
Drew Powers: “Tax credits are generally favorable for taxpayers, despite their complexity. This first tax return may be the toughest, but it only impacts those who buy a qualifying car with a qualifying loan in 2025. I expect subsequent years to be a bit smoother.”
Kevin Thompson: “For those Americans already able to purchase a new car, this is clearly a benefit. However, a bigger concern is where the funding for these tax cuts will come from. With the government running deficits, these tax reductions are effectively financed by borrowing, which eventually impacts taxpayers. I view this as a temporary win that could have longer-term implications as government spending continues to rise.”
What happens next
For families who have recently purchased a car or plan to in the future, this new auto loan deduction might result in modest savings, according to Bean.
“For households preparing to buy a car, this could make tax season slightly less expensive,” he noted. “Ultimately, it addresses the larger issue of vehicle affordability.”
