Treasury Implements Auto Loan Interest Tax Break: Ford and GM Hit 52-Week Highs

Treasury Secretary Scott Bessent delivered welcome news to American car buyers on Wednesday, announcing that the Treasury Department is actively implementing President Trump's "No Tax on American Car Loan Interest" policy—a provision that could save millions of families thousands of dollars annually on their vehicle financing costs.

The announcement sent shares of major automakers sharply higher. Ford Motor Company jumped 5% to reach a new 52-week high, while General Motors climbed 3% to its own 52-week peak. The market reaction underscored investor expectations that the tax break will meaningfully boost vehicle demand, particularly for domestic manufacturers.

How the Tax Break Works

Under the policy, eligible taxpayers can deduct up to $10,000 per year in auto loan interest for new, U.S.-assembled vehicles purchased between 2025 and 2028. Crucially, the deduction is available whether taxpayers itemize their deductions or take the standard deduction—a significant feature that extends the benefit to the vast majority of filers.

"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

Bessent added that the Treasury Department and IRS are rolling out clear guidance so taxpayers "know exactly how the deduction works." The implementation follows passage of the provision as part of Trump's comprehensive tax legislation last year.

Who Benefits Most

The tax break is designed to provide meaningful relief to working and middle-class families who finance vehicle purchases—typically with interest rates that have remained elevated despite Federal Reserve rate cuts. Current auto loan rates average approximately 7% for new vehicles, meaning a $40,000 car loan would generate roughly $2,800 in first-year interest charges.

For a taxpayer in the 22% federal bracket, a $2,800 interest deduction would translate to approximately $616 in tax savings. Over the life of a typical 60-month auto loan, cumulative savings could approach $2,000—a meaningful offset to the higher borrowing costs that have deterred many consumers from vehicle purchases.

Key eligibility requirements:

• Vehicle type: New vehicles only (not used)
• Assembly location: Must be assembled in the United States
• Purchase window: Vehicles purchased 2025-2028
• Annual limit: Up to $10,000 in interest deductible per year
• Deduction method: Available with standard or itemized deductions

Domestic Manufacturing Boost

The requirement that vehicles be "U.S.-assembled" represents a deliberate policy choice to support American manufacturing jobs. Secretary Bessent emphasized this aspect in his announcement, noting that "the tax cut also supports American workers by applying solely to U.S.-assembled vehicles, strengthening domestic manufacturing."

This provision creates a meaningful incentive for consumers considering imported vehicles to instead purchase domestically-produced alternatives. While many foreign-branded vehicles are assembled in the United States—including popular Toyota, Honda, and BMW models—the policy nonetheless tilts the playing field toward domestic production.

For Ford and GM, which conduct the majority of their U.S. vehicle production domestically, the policy represents a clear competitive advantage. Both companies have been investing heavily in U.S. manufacturing capacity, particularly for electric vehicles, and the tax break provides additional justification for those investments.

Impact on Auto Demand

Auto industry analysts expect the tax break to provide modest but meaningful support to vehicle sales, which have been constrained by elevated prices and interest rates. New vehicle average transaction prices exceeded $48,000 in 2025, up dramatically from pre-pandemic levels, while monthly payments have climbed above $700 for many buyers.

The interest deduction alone won't solve affordability challenges, but it does reduce the effective cost of financing at a time when consumers are highly sensitive to monthly payments. Combined with improving inventory levels and potential manufacturer incentives, the tax break could help normalize sales volumes after several challenging years.

Industry forecasts suggest U.S. new vehicle sales could reach 16.5 million units in 2026, up from approximately 15.8 million in 2025. The tax break is expected to contribute marginally to this growth, with the larger impact coming from moderating prices and improving consumer confidence.

Political and Economic Context

The auto loan tax break is part of a broader suite of middle-class tax relief measures championed by the Trump administration. Other provisions, including "no tax on tips" and expanded child tax credits, have similarly targeted working families who have felt squeezed by inflation and elevated borrowing costs.

Critics have questioned whether tax deductions—which provide proportionally larger benefits to higher-income taxpayers—are the most efficient way to support vehicle affordability. Alternative approaches, such as direct subsidies or enhanced loan programs, might deliver more targeted relief to those who need it most.

Supporters counter that the deduction's broad availability ensures that millions of families can benefit without navigating complex eligibility requirements. The ability to claim the deduction alongside the standard deduction is particularly important, as most taxpayers no longer itemize following the 2017 tax reform.

Investment Implications

For automotive investors, the tax break provides a modest tailwind for domestic manufacturers at a time when the industry faces multiple challenges. Electric vehicle transition costs, evolving consumer preferences, and competitive pressure from Chinese manufacturers have all weighed on sector sentiment.

Ford and GM remain attractively valued relative to historical norms, trading at single-digit price-to-earnings multiples despite significant investment in future technologies. The tax break's demand support could help bridge the gap until EV production scales and costs decline.

Auto lenders may also benefit from increased loan origination volumes, though the impact will depend on whether the tax break actually stimulates incremental purchases versus simply benefiting buyers who would have purchased anyway.

Looking Ahead

The Treasury Department is expected to release detailed guidance on claiming the auto loan interest deduction in the coming weeks. Taxpayers who have already purchased qualifying vehicles in 2025 should retain documentation of their loan terms to claim the deduction when filing their 2025 returns next year.

For prospective car buyers, the tax break adds another factor to consider when evaluating vehicle options. Verifying U.S. assembly status—information available on vehicle window stickers—will be essential to ensure eligibility for the deduction.

As Treasury implements the policy, the auto industry will be watching closely to see whether tax relief translates into showroom traffic and, ultimately, sustained demand growth.