Last year, data show Americans moved away from dealerships with more than 15 million new vehicles, with about 80% of buyers allegedly rely on financing for purchase. According to the Kelly Blue Book, the average car prices so far in 2025 are around $ 48,000, with interest rates for car loans on average around 8.64%.
For a 5 -year loan, it roughly translates to $ 187 per month in just interest. For those who need a new car, they can stress the cost budget.
Now, a new proposal out of the US House of Representatives, if approved, reduce that burden by allowing borrowers to cut auto loan interest from their taxes. In its own version of a large, beautiful bill of Trump, the house provides tax deduction for GOP car loan interest.
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But when the plan seems to provide saving, it is important to note that every car or buyer will not qualify for tax profit. So, if you are thinking about buying a new car, then what should you know here.
‘Big, Beautiful Bill’ Car Debt Interest Cut
Last week, Republican MPs passed a large beautiful bill act at the House of Representatives.
The mega law, which now carries forward the US Senate for approval, is mainly designed to expand or create a permanent tax brake from Trump’s 2017 Tax Cuts and Jobs Act (TCJA).
Here is described how the proposed auto loan interest deduction in the House GOP bill will work:
- If passed, the measures will temporarily allow car buyers to write up to $ 10,000 per year in interest paid on auto loans.
- The tax break will start with the purchase made in 2025 and run till 2028.
- You do not have to do items to claim cuts.
But not every buyer or vehicle will qualify for tax break.
- To qualify, the car must be assembled in the United States – a rule that some industry manufacturers say will exclude many popular imports. (Think of popular models of Honda, Hyundai, Nissan and Toyota.)
- The deduction will also begin to phase out for individuals earning more than $ 100,000 or more than $ 200,000.
- High-ie houses will have less profit.
If the bill becomes law (the House has passed its own version of the law, but the Senate and the President should also approve the proposal), these changes will apply to the loans made in 2025 and then, but for only three years, through 2028.
Who benefits from car loan cuts?
The supporters of the deduction argue that it will provide direct financial relief to car buyers when vehicle prices and interest rates are higher.
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Hijenga mentioned in a statement that the car fulfills the promise of the President’s campaign by making the car loan interest tax-cutable and “provides financial motivation to buy American-made vehicles for individuals and families.”
Sen Burney Moreno (R-Ohio) sponsored a bill with a uniform proposal, USA Car Act.
Moreno said, “Thanks to President Trump, we are eventually sure that every car sold in the US is made in the US and working Americans can actually buy a car at first first. I am proud to lead the path in the Senate.”
- Supporters also emphasized that, as mentioned, the cuts have been structured as an above-line profit, so taxpayers can claim that even though they claim standard deduction on their federal returns.
- Some advocates also see measurements as a way to encourage the purchase of American-Its vehicles.
(Image Credit: Getty Pictures)
Meanwhile, other people question the question of how much relief the cut will actually provide and whether this is the most effective way to help car buyers.
Jonathan Smoke, Automotive Services and Technology Provider Cox’s Chief Economist, and his team allegedly analyzed the proposed auto loan interest deduction. They found that if the average car owner pays $ 2,000 in interest in a year, they can save about $ 400 on their taxes under the House’s proposal.
However, given the overall costs of buying a car, Smoke said the company said that the company “does not think (car loan tax deduction) is exciting as a proposal for more vehicle sales.”
There are also concerns about the fairness and fiscal effects of the cut.
Benefits exit for high-ore houses, but some analysts argue that those with means to buy new cars, especially more expensive models, are more likely to profit.
On the other hand, many lower-oriented buyers and those who purchased or imported vehicles can be abandoned.
And then the cost is: The Joint Committee on Taxation estimates that the provision will cost more than $ 57 billion in lost federal revenue, which raises questions about its comprehensive economic trade-bands.
EV Tax Credit 2025?
It seems that electric vehicles can qualify for proposed car loan interest deduction, provided they meet the same requirements as other vehicles under the House Bill.
In addition, the cut does not look limited by the vehicle type, so EVS and plug-in hybrid will be likely to qualify if they are US-butt and meet other requirements of the loan bill.
But it is worth noting that when the House GOP Tax Bill has proposed a new tax break for US-Its vehicles, the law will end $ 7,500 federal EV tax credit for new electric vehicles and this year will end up to $ 4,000 for EVS after this year.
- This is long before the end of 2032 that was initially determined by the inflation reduction Act, passed during the biden administration.
- If the provision becomes a law, only a few new EVs from the manufacturers that have not been sold 200,000 qualifying vehicles will be eligible for an additional year.
In addition to ending these credits, the bill will introduce new annual fees: $ 250 for electric vehicles and $ 100 for hybrids.
Remember: The Senate will probably change the House version of the law, but if these EV provisions become laws, they will increase the cost of ownership for those vehicles.
What about auto tariffs under Trump?
Data show that Trump’s auto tariffs offered in 2025 are already increasing car prices across America.
- 25% tariffs on imported vehicles and parts have allegedly raised the price of average new vehicle by 2.5% in April.
- According to COX Automotive and Kelly Blue Book Analysis, it is doubled from specific monthly growth for this time of the year.
True car reports that some foreign models have seen an increase of $ 5,000 to $ 10,000. Global supply chains also affect domestic -produced automobiles, some face an additional cost of about $ 2,000 to $ 3,000.
Note: When it comes to the proposed car loan interest deduction, most imported vehicles, subject to the new 25% tariff, will not meet the need for this US assembly and will not be eligible for it.
However, some American-recent vehicles may still include imported parts affected by tariffs. As a result, the cost of higher parts from the tariff may still increase prices for some qualifying models.
Buying a car: bottom line
Even if the proposed car loan tax deduction becomes law, car buyers should not lose the vision of a large financial photo.
The price of the car, interest rates, insurance, maintenance, and any new fees all add quickly. It is also important to keep an eye on your credit score, as it can bring you a big difference in paying the life of your debt.
Recent tariffs can also play a role: 25% tariff prices on most auto parts may push even more, even for models gathered in the US, although two court decisions released in late May have at least temporarily halted some tariffs of Trump.
No matter what can happen on the tax brake table, it is worth taking time to run the number, make the best purchase around for funding, and make sure your car purchase actually fit your needs and budget.
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