A powerful new federal tax break is quietly changing how Americans shop for cars, and most buyers still don’t know it exists. The “No Tax on Car Loan Interest” provision in the One Big Beautiful Bill Act allows eligible new car buyers to deduct up to $10,000 in car loan interest per year. One condition applies: the vehicle must be assembled on American soil.
What the New Car Loan Tax Break Actually Is
On July 4, 2025, President Trump signed the One Big Beautiful Bill Act into law, a sweeping piece of legislation that permanently extends and expands provisions of the 2017 Tax Cuts and Jobs Act. Among several new temporary tax cuts in the legislation is a provision allowing taxpayers to deduct interest owed on auto loans through 2028, a move that targets auto loan interest in a way that has not been done before in the U.S. tax code.
The tax deduction is available for new vehicles financed on or after January 1, 2025 through December 31, 2028 and covers tax years 2025, 2026, 2027, and 2028. A taxpayer can deduct a maximum of $10,000 in interest paid per year.
While this deduction is similar to the mortgage interest deduction available to homeowners, there is one major difference: car buyers can claim their auto loan interest even if they take the standard deduction. That is a big deal for tens of millions of middle-class Americans who do not itemize.
This provision was an attempt to fulfill a 2024 campaign promise by President Trump to stimulate domestic auto demand and improve affordability. In practice, it uses the tax code as a direct lever to shape where cars are built and which ones Americans choose to buy.
new car loan interest deduction American made vehicle buyers 2025
How to Check If Your Car Actually Qualifies
A qualified vehicle is a car, minivan, van, SUV, pick-up truck or motorcycle with a gross vehicle weight rating of less than 14,000 pounds that has undergone final assembly in the United States. Foreign-assembled vehicles do not qualify, regardless of the brand name on the hood.
Electric vehicles and plug-in hybrids also qualify for the car loan interest deduction, provided they meet the same requirements as other vehicles, meaning they must be U.S.-assembled and the loan must meet the bill’s other eligibility requirements.
Checking your car’s assembly location is easier than you might think. Here are three ways to verify before you sign any paperwork:
• Window sticker: The location of final assembly is listed on the vehicle information label attached to each vehicle on a dealer’s premises.
• VIN number: Vehicles with VINs starting with a 1, 4, or 5 in the first digit indicate U.S. final assembly.
• NHTSA online tool: The NHTSA VIN Decoder website provides plant of manufacture information, and taxpayers can follow its instructions to determine if the vehicle’s plant was located in the United States.
Some cars have final assembly done in multiple countries, which complicates eligibility. Popular models from brands like Honda, Hyundai, Nissan, and Toyota could miss the cut depending on where that specific trim was assembled. Always verify the exact model, year, and trim level before committing to a purchase.
Income Rules That Determine Your Eligibility
Single taxpayers with up to $100,000 in modified adjusted gross income and married couples earning up to $200,000 are eligible for the full car loan deduction.
Under the new law, the deduction shrinks by $200 for each $1,000 in income above those thresholds. The deduction is completely phased out for single filers earning above $150,000 and married couples with incomes above $250,000.
Filing Status Full Deduction Up To Phase-Out Begins Fully Phased Out At Single $100,000 MAGI Above $100,000 $150,000 Married Filing Jointly $200,000 MAGI Above $200,000 $250,000
The deduction applies only to interest paid on a loan used to purchase a qualified vehicle for personal use, and lease payments do not qualify. Used vehicles are also fully excluded from this benefit.
There is no limit on the number of auto loans a taxpayer may claim, so long as each vehicle in question meets all the eligibility requirements. So if a household finances two qualifying U.S.-assembled vehicles in the same tax year, interest on both loans may count.
What Real Buyers Can Expect to Save
Average car prices in 2026 are sitting at about $50,326 according to Kelley Blue Book, with auto loan interest rates hovering around 7.0%. For a five-year loan at that amount, interest payments alone run roughly $262 a month, a cost that can genuinely strain household budgets.
The real-world savings add up fast for eligible buyers.
Someone in the 22% tax bracket who deducts $3,000 in auto loan interest could save approximately $660 on their federal taxes in that year. For buyers with strong credit scores around 6.5%, the deductible interest could reach $3,000 in the first year and roughly $1,800 annually after that for the remainder of the loan.
Roughly 4 million of the nearly 13.4 million new cars sold in the U.S. last year would be eligible for the deduction, according to estimates from Jeremy Robb, chief economist at Cox Automotive. That is a meaningful share of the market, though it also means most new car buyers will miss out because their vehicle was not assembled in the United States.
As of April 10, around 1.2 million tax returns had already claimed the auto loan interest deduction. That number is expected to rise sharply as more buyers become aware of the benefit heading into future filing seasons.
Dealerships have wasted no time highlighting this change, with sales teams using the tax break as a tool to help customers get past sticker shock on American-built models. It is now a real point of conversation on showroom floors across the country.
To claim the deduction, here is exactly what you will need to do:
• Request your annual interest statement from your lender. For 2025 loans, your lender should have provided a statement by January 31, 2026, showing the total interest paid during the year.
• Fill out Schedule 1-A with information about your income, auto loan, and VIN, and submit it along with your federal tax return.
• Starting with the 2026 tax year, your lender must send you a Form 1098-VLI if you paid at least $600 in qualified interest, showing the amount paid and other details you need to claim the deduction.
• If you later refinance the qualifying loan, interest paid on the refinanced amount is generally still eligible for the deduction.
The non-partisan Joint Committee on Taxation estimates the deduction will cost the federal government $31 billion from fiscal years 2025 to 2034, placing it in the top 25% of costliest provisions in the entire bill. Analysts also note that ongoing tariff pressures on auto supply chains could temper the overall consumer benefit.
For car buyers across the country, the stakes here are real and personal. This is not just a line item in a massive tax bill; it is a policy decision that rewards families who buy American-built vehicles at a moment when new car prices have never been higher. Whether you bought a new car last year or are planning to before 2028, checking the assembly location of your next vehicle could put hundreds or even thousands of dollars back in your pocket come tax season. That is a detail no buyer can afford to ignore. What do you think about this new car loan deduction? Drop a comment below and let us know if it will change the way you shop for your next vehicle.
