Proposed Car Loan Interest Tax Deduction Could Benefit Many

Leland Terry
Published May 22, 2025


In an effort to boost the sale of vehicles made in the USA, a new GOP tax proposal could allow car buyers to deduct up to $10,000 of interest paid on their car loans from their taxes.

President Donald Trump announced this idea, which he dubbed a "beautiful bill," aimed at keeping his promise to support American industry by encouraging people to buy domestically-made vehicles.
 

Key Details of the Proposed Deduction

 
  • Amount Deductible: You could deduct up to $10,000 of car loan interest from your taxes per year.
  • Who Benefits: This deduction isn't limited to people who itemize deductions on their taxes; it could also help people who take the standard deduction. Previously, more people started taking the standard deduction after changes in the tax laws in 2017 under President Trump.
  • Income Limits: Not everyone will qualify, as the deduction phases out for higher income levels. For single filers, the phase-out starts at an income of $100,000 and completely phases out at $149,001. For joint filers, it starts at $200,000 and ends at $249,001.
  • Type of Vehicle: The deduction would apply to new and possibly used cars, although the specifics about used cars are still unclear. The key stipulation is that the car must be assembled in the United States.
 

Timeline and Eligibility

 
  • Temporary Measure: The proposal would only apply to car loans taken out between 2025 and 2028. If you get a five-year loan in 2027, for example, you will benefit from this deduction for two years.
  • Specific Years for Deduction: The tax relief will only be available for the mentioned four years unless extended.
 

Legislative Status


Despite these promising features, the proposal is still under discussion, and its final approval is uncertain. Legislators will need to finalize the bill's details and navigate it through both houses of Congress.
 

Things to Consider

 
  • Not the Whole Payment: Remember, you can’t deduct your entire car payment—just the interest. Early in the loan term, your payments consist more of interest, which means you save more on taxes than you will later on.
  • Varying Benefits: The actual savings depend on your tax rate—the higher your rate, the more you save.
 

Economic Context


Many consumers are currently worried about affordability due to high car prices and interest rates. Legislative actions like this tax deduction are seen as a way to relieve some of those financial pressures.

This new proposal, if passed, could make it slightly easier to afford a car by reducing the amount of tax you have to pay on the interest of car loans.

It's an attempt by lawmakers to keep the promise of supporting domestic manufacturing and helping everyday people manage larger financial commitments such as buying a car.

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