Americans could soon benefit from a major new tax break: the House has approved a bill that allows taxpayers to deduct up to $10,000 per year in auto loan interest on vehicles made in the U.S. The measure, part of the “One Big Beautiful Bill Act,” passed the House on a razor-thin 215–214 vote, and would deliver substantial savings for car buyers — but only for a limited window and with key restrictions.
This article breaks down who qualifies, how the deduction works, which vehicles are eligible, and how it affects current and future car buyers. We also cover how the provision fits into the broader tax bill and its impact on government revenue.
How the Auto Loan Interest Deduction Works
The bill, if enacted, allows Americans to deduct up to $10,000 in interest paid on consumer auto loans each year from 2025 through 2028, but only for vehicles assembled in the United States. The deduction is structured “above the line,” so most taxpayers can claim it — whether or not they itemize other deductions. This makes it far more widely available than past deductions for car loan interest.
Who Qualifies?
The deduction is open to borrowers financing new or used personal vehicles that are assembled in the U.S. The pool of eligible vehicles includes not just passenger cars, but also motorcycles, RVs, trailers, and all-terrain vehicles. However, commercial vehicles, lease payments, title loans, salvage-title cars, and vehicles bought for parts or scrap do not qualify.
High-income households face a reduction in the deduction. For every $1,000 earned above $100,000 for individuals, or every $200,000 above for joint filers, the deductible amount is reduced by $200. The deduction fully phases out for higher incomes.
How Much Can You Save?
With the average new-vehicle loan in April totaling $41,444 over nearly six years at a 7.1% interest rate, the average borrower would pay $2,748 in interest in the first year alone. Deducting this amount at the lowest tax bracket (10%) yields a $275 tax savings, while those at the $100,000 benchmark (22%) save roughly $605 in the first year. Across a typical four-year loan, the deduction could add up to $8,200 in interest — yielding hundreds of dollars in savings for most buyers.
According to House estimates, this policy would save most Americans between $200 and $300 annually on their tax bills. The Congressional Budget Office projects a $57.8 billion reduction in federal revenue from 2025 to 2029 as a result of this deduction.
Who Is Excluded and What Changes?
While the bill extends new benefits to car buyers, it eliminates federal tax credits for new, used, and commercial electric vehicles that were enacted as part of the Inflation Reduction Act of 2022. However, a production tax credit for battery manufacturers remains, albeit with new restrictions on vehicles using components or technology from certain Chinese firms after 2027.
Another important exclusion: the deduction does not apply to loans for commercial fleets, vehicle leases, or salvage-titled vehicles. Only consumer loans for vehicles assembled in the United States are eligible.
Reporting and Compliance Requirements
Lenders who collect at least $600 in interest on an eligible auto loan will be required to file paperwork with the IRS detailing the amount of interest paid and the outstanding loan balance. This ensures borrowers and the IRS can accurately track and verify claims for the deduction.
Why This Deduction Matters for Car Buyers
Unlike most tax deductions, the auto loan interest deduction in H.R. 1 is “above-the-line.” This means it lowers taxable income before the standard or itemized deduction is calculated, so virtually all taxpayers who finance qualifying vehicles can use it. Previously, auto loan interest could only be deducted if a taxpayer itemized, and that provision was eliminated in 1986.
By making the deduction broadly accessible, the House bill aims to boost sales of American-made vehicles, help families manage the cost of car loans, and support the U.S. manufacturing sector.
Next Steps: Senate Vote and the Road Ahead
The bill now heads to the Senate, where its prospects remain uncertain. If it passes and is signed by President Trump, the deduction would be available from the 2025 tax year through 2028. Policymakers and industry leaders are watching closely, as this provision would affect millions of American families, automakers, and lenders nationwide.
“Passing this America-first bill was vital to our Nation’s future in both the long and short term, and I was pleased to help move it one step closer toward President Trump’s desk to be signed into law.” — Rep. David Taylor, R-Ohio
- The deduction is capped at $10,000 per year in interest on loans for U.S.-assembled vehicles.
- Most Americans will be eligible, regardless of whether they itemize deductions.
- Commercial vehicles, leases, salvage titles, and imported vehicles do not qualify.
- The bill repeals EV purchase credits from the Inflation Reduction Act, but preserves some battery incentives with restrictions.
If passed, the deduction could provide a timely tax break to millions of Americans purchasing U.S.-made vehicles — making the next few years a crucial window for those considering a car loan.
