New Tax Law Benefits Car Buyers

A recent piece of legislation is generating excitement among car buyers. For the first time in decades, taxpayers can now deduct up to $10,000 in interest from car loans for new vehicles that are assembled in the United States. This comes as a relief amid rising borrowing costs and inflation.

Families purchasing a $40,000 SUV could potentially save hundreds in their first year, depending on their tax situation. Plus, it helps bolster American manufacturing.

Direct Benefits

Unlike many tax credits, this one is straightforward. Because it’s on the line, taxpayers can claim it without hassle, making it accessible for countless middle-income families.

To be eligible, buyers must acquire a new vehicle—this could be a car, SUV, truck, van, or motorcycle, as long as it weighs under 14,000 pounds and is assembled in the U.S. It’s a direct response to the challenges faced by American automotive firms due to global competition and supply chain issues.

The law requires lenders to provide a new IRS form, 1098-Q. Borrowers must include their vehicle identification number on their tax return to confirm eligibility. Even if they refinance, they may still qualify for the deduction as long as the vehicle meets the initial criteria. This ensures that the tax deduction rewards American-assembled vehicles. A list of qualifying vehicles is available.

The deduction is particularly aimed at middle-income buyers. For single filers, it phases out starting at $100,000 and ends completely at $150,000. For couples, it begins at $200,000 and concludes at $250,000. This structure primarily benefits households facing significant burdens from high interest rates. Currently, new car loans average over 7%, with prices exceeding $42,000, meaning first-year interest could top $1,600. For these families, the deduction offers worthwhile tax refunds without nearing the $10,000 limit.

Great Savings

Dealers are quick to promote this new deduction. Their sales teams are using it to ease the shock of high vehicle prices. Many families financing a $40,000 SUV could save hundreds in their first year, which may influence their buying decision. This is especially beneficial for dealers selling mid-range U.S.-made vehicles, including models from Ford, Chevrolet, and Tesla.

By structuring loans to maximize benefits from the new law, dealers can also emphasize their role in helping buyers save money, fostering trust in a time when consumers are wary of debt.

The legislation also incorporates other provisions, like allowing 100% bonus depreciation on eligible business assets by 2028. This is particularly advantageous for small business owners and independent contractors, including ride-share drivers, who can deduct interest on the vehicles they use for work. It also aids dealers in managing their inventory better.

Changes to EV Tax Credits

However, one significant development is the phase-out of federal electric vehicle tax credits. Starting September 30, 2025, long-standing incentives of $7,500 for new EVs and $4,000 for used EVs will no longer be available. Although EV sales have received a boost from taxpayer-funded incentives in the past, that era is closing. Buyers interested in EVs will now need to assess their actual value, similar to gas-powered vehicles. While U.S.-assembled EVs qualify for car loan interest deductions, the federal handouts will soon be a thing of the past.

This change creates a sense of urgency. Dealers aim to clear out their EV inventories before credits vanish, while promoting the deductions available for all qualifying vehicles. For buyers, it’s clear: if you need an EV, act quickly. If you’re after long-term tax savings, consider a vehicle assembled in the U.S. under the new deductions.

With a deduction timeline extending to 2028, both buyers and dealers are gearing up for a surge in purchases over the next couple of years. This incentive aims to create a temporary spike in car sales. What sets this initiative apart is its dual focus—not only moving vehicles off lots but also supporting factories and workers across the United States.

Simple Steps for Buyers

The process for buyers is straightforward. Ensure your vehicle is new, made in the U.S., and purchased after December 31, 2024. Check your income limits, work with your lender for accurate reporting, and keep your VIN handy for your tax return. Given the high interest rates and the current average price of new vehicles over $48,000, the potential savings can be significant. Over the life of a multi-year loan, certain buyers could save thousands in taxes while maintaining healthier household finances.

This new car loan deduction represents more than just a tax line. It’s about supporting American manufacturing, aiding the middle class, and reducing dependence on subsidies that disrupt the market. For car buyers navigating inflation, high interest rates, and everyday expenses, this initiative offers something noteworthy coming out of Washington.

List of Qualifying Vehicles

• Acura: Integra, MDX, RDX, TLX, ZDX
• BMW: x3, x4, x5, x6, x7, xm
• Buick: Enclave, Encore GX, Envista
• Cadillac: Celestiq, CT4, CT5, Escalade, Escalade IQ, Lyriq, Vistiq, XT4, XT5, XT6
• Chevrolet: Colorado, Corvette, Express, Malibu, Silverado 1500, Silverado 2500, Silverado EV, Suburb, Tahoe, Traverse
• Dodge: Durango
• Ford: Bronco, Escape, Expedition, Explorer, F-150, F-150 Lightning, Mustang, Ranger
• Genesis: GV70, GV80
• GMC: Acadia, Canyon, Hammer EV Sut, Hammer EV SUV, Savanna, Sierra 1500, Sierra 2500, Yukon, Yukon XL
• Honda: Accord, Civic, CR-V, Odyssey, Pilot, Ridgeline
• Hyundai: Santa Cruz, Santa Fe, Tucson, Ioike 5, Ioike 9
• Jeep: Gladiator, Grand Cherokee, Wagonia, Grand Wagonia, Wagoner
• Kia: EV6, EV9, Sorento, Telluride
• Lincoln: Aviator, Corsair, Navigator
• Light ID: Air, gravity
• Mazda: CX-50
• Mercedes-Benz: EQE SUV, EQS SUV, GLE, GLS, Sprinter 2500, Sprinter 3500
• Nissan: Ultima, Frontier, Pathfinder, Rogue, Leaf
• Polestar 3
• Libian: R1S, R1T
• Subaru: Rising, Impreza, Legacy, Outback
• Tesla: CyberTruck, Model 3, Model Y, Model S, Model X
• Toyota: BZ4X, Camry, Corolla, Corolla Cross, Grand Highlander, Highlander, Sequoia, Sienna, Tundra
• Volkswagen: Atlas, Atlas Cross Sports, ID.4
• Volvo: EX90, S60
• Sturdy vehicle (8,501-13,999 pounds GVWR)
• Ford: Super Duty F-250, Super Duty F-350 (SRW configuration), Transit 350 HD
• Chevrolet: Express 3500, Silverado 3500HD (certain configurations below 14,000 pounds)
• GMC: Savana 3500, Sierra 3500HD (certain configurations below 14,000 pounds)