The U.S. House of Representatives has passed a comprehensive tax and funding bill that would grant Americans a tax deduction on up to $10,000 in auto loan interest per year for vehicles assembled in the United States. This provision, included in the “One Big Beautiful Bill Act” (H.R. 1), is expected to deliver notable savings to car buyers while incentivizing domestic manufacturing.
According to the House Ways and Means Committee, “The average American family will be able to fully deduct auto loan interest for American-made cars.” The measure passed on May 21 by a narrow 215-214 margin, largely along party lines, with a handful of exceptions on both sides.
Under the proposed law, consumers would be able to deduct interest on qualifying auto loans for the 2025 through 2028 tax years. The deduction would apply to new and used vehicles, including RVs, motorcycles, trailers, and all-terrain vehicles, as long as they are assembled in the U.S. Loans for leased vehicles, commercial and fleet vehicles, salvage-titled cars, and those purchased for parts are excluded.
High-income households would face a gradual reduction in their deductible amount. For single filers earning over $100,000 and joint filers over $200,000, the deduction would be reduced by $200 for every $1,000 or $2,000 in income above those thresholds, respectively.
The bill also eliminates federal tax credits for electric vehicles that were established under the Inflation Reduction Act, making the deduction the primary new tax benefit for vehicle buyers. Elements of the 2017 Tax Cuts and Jobs Act would also become permanent, including individual tax rates and a higher standard deduction.
For taxpayers, the auto loan interest deduction is designed as an “above-the-line” adjustment to gross income. This means the deduction is available to anyone, regardless of whether they itemize deductions or take the standard deduction a shift that could allow millions more Americans to benefit. Previously, such a deduction required itemizing, which only a minority of households do today.
Edmunds estimates that the average new-vehicle loan in April financed over $41,000, with the average borrower paying nearly $2,750 in interest in the first year alone. Depending on the taxpayer’s bracket, the deduction could mean annual tax savings ranging from $200 to over $600 for many families.
The Congressional Budget Office projects that the auto loan interest deduction will cost the government $57.8 billion in lost revenue between 2025 and 2029. To help enforce the new deduction, lenders collecting at least $600 in interest must file paperwork detailing the interest paid and remaining loan balance.
Republican lawmakers, including President Donald Trump, have praised the bill as a way to boost American manufacturing and provide meaningful tax relief. Supporters argue that it will make U.S.-built vehicles more affordable and competitive, especially as other provisions seek to roll back some recent incentives for electric vehicles. The legislation now heads to the Senate for further consideration.
