If you've been putting off a new car purchase, the Treasury Department just gave you a compelling reason to reconsider. Secretary Scott Bessent announced Wednesday that the department is implementing President Trump's "No Tax on American Car Loan Interest" policy—a tax break that could save qualifying buyers thousands of dollars over the life of their auto loan.

The provision, which was signed into law as part of the One Big Beautiful Bill Act on July 4, 2025, allows eligible taxpayers to deduct up to $10,000 annually in car loan interest on new, U.S.-assembled vehicles purchased between 2025 and 2028.

How the Deduction Works

Unlike many tax breaks that require itemizing deductions, this auto loan interest deduction is available regardless of whether you take the standard deduction or itemize on your tax return. That's a significant advantage, as the majority of American taxpayers now take the standard deduction.

Here's what you need to know:

  • Maximum Deduction: Up to $10,000 per year in car loan interest
  • Eligible Vehicles: New cars, SUVs, vans, pickup trucks, and motorcycles weighing under 14,000 pounds
  • Assembly Requirement: Final assembly must occur in the United States
  • Use Requirement: Vehicle must be purchased for personal use, not business or commercial purposes
  • Timeline: Applies to vehicles purchased between 2025 and 2028

Who Qualifies—and Who Doesn't

The deduction is designed to benefit middle-class car buyers, with income limits that phase out the benefit for higher earners.

Income Limits

Single filers earning up to $100,000 annually can claim the full deduction. Joint filers earning up to $200,000 qualify for the maximum benefit.

For those earning above these thresholds, the deduction decreases by $200 for every $1,000 of income above the limit. This means a single filer earning $150,000 would see their maximum deduction reduced by $10,000—effectively eliminating the benefit entirely.

Important Exclusions

Used vehicles do not qualify. This is perhaps the most significant limitation, as used car sales outpace new car sales in the United States by a wide margin. If you're in the market for a pre-owned vehicle, this tax break won't apply to your purchase.

Additionally, vehicles used for business or commercial purposes are excluded. If you're self-employed and planning to deduct vehicle expenses through your business, you'll need to choose between this personal deduction and business-related vehicle deductions.

The Real-World Savings

To understand what this means for your wallet, let's run through a practical example.

Consider a buyer purchasing a $45,000 SUV with a $5,000 down payment, financing $40,000 at 7% interest over 60 months. In the first year alone, this buyer would pay approximately $2,600 in interest.

If this buyer is in the 22% federal tax bracket, deducting that $2,600 would save them roughly $572 in federal taxes for the year. Over the life of the loan, the total interest paid would be approximately $7,800, potentially saving the buyer around $1,700 in federal taxes if they remain in the same bracket.

When the Savings Really Add Up

The benefits become more pronounced for buyers financing more expensive vehicles or those facing higher interest rates. A buyer financing $60,000 at 8% interest could easily hit the $10,000 deduction cap in the first two years of their loan, maximizing the tax benefit.

Which Vehicles Qualify?

The IRS has not yet released an official list of qualifying vehicles and models. However, Treasury Secretary Bessent emphasized that the requirement is straightforward: final assembly must occur in the United States.

This means many popular vehicles from both domestic and foreign automakers could qualify. For example:

  • Tesla vehicles assembled at the company's Texas and California facilities
  • Many Toyota, Honda, and Hyundai models assembled at U.S. plants
  • Most Ford, GM, and Stellantis vehicles built domestically
  • BMW and Mercedes models assembled at their U.S. manufacturing facilities

Buyers should verify the assembly location of any vehicle they're considering. This information is typically available on the window sticker (Monroney label) or can be confirmed with the dealer.

The Policy's Purpose

Treasury Secretary Bessent framed the tax break as both an affordability measure and a manufacturing incentive:

"For millions of Americans, a car isn't a luxury, it's how you get to work, school, and childcare. This deduction helps lower monthly costs and makes car ownership more affordable when families need it most."— Treasury Secretary Scott Bessent

By limiting the benefit to U.S.-assembled vehicles, the administration hopes to encourage domestic manufacturing and job creation in the automotive sector.

What to Do Now

If you're considering a new vehicle purchase, here's how to prepare:

  1. Check your income level to determine if you qualify for the full deduction or a reduced amount
  2. Verify assembly location before purchasing to ensure your chosen vehicle qualifies
  3. Keep loan documents organized for tax filing purposes—you'll need records of interest paid
  4. Consult a tax professional if you have complex tax situations or questions about how this interacts with other deductions

The tax break represents a meaningful opportunity for buyers who were already planning a new car purchase. For those on the fence, it adds another factor to consider in the buy-versus-lease calculation.

Tax laws are complex and individual situations vary. This article is for informational purposes only and should not be considered tax advice. Consult a qualified tax professional for guidance specific to your situation.