The recently signed tax-and-spending cuts bill introduces a new temporary income tax deduction for interest paid on loans financing the purchase of qualified passenger vehicles. The provision applies to purchases made in 2025, 2026, 2027, and 2028, but has specific requirements and limitations.
To qualify, the vehicle must be for personal use only and have its “final assembly” take place in the US. New vehicles only are eligible, and the law specifies that certain types of vehicles, such as unicycles and golf carts, do not qualify.
The deduction is limited to $10,000 per year and reduces further if an individual’s modified adjusted gross income exceeds a certain threshold. In essence, this means that individuals with higher incomes may not be eligible for the deduction or will have it reduced significantly.
According to experts, few people above a 22% tax bracket will benefit from the deduction, resulting in a maximum reduction of $2,200. Meanwhile, the average total interest paid over the life of a new-vehicle loan is around $9,851, which may not be enough to offset potential price increases due to tariffs.
The Institute on Taxation and Economic Policy estimates that even a 3% tariff increase would result in the deduction failing to offset the increased cost. As such, the value of this tax break for eligible individuals must be weighed against potential price hikes in vehicles.
Source: https://edition.cnn.com/2025/07/09/business/car-loan-interest-deduction-qualify