A new vehicle loan interest deduction, one piece of the Trump administration’s July 4 tax megabill, is now in effect.
For context: Trump introduced the idea on the campaign trail last year, pitching the deduction as a way to offset affordability concerns with car buying. However, a recent analysis from the Institute on Taxation and Economic Policy (ITEP) suggests the benefit will be minimal for most buyers.
Here’s the breakdown: Under the megabill, buyers can deduct up to $10,000 per year in qualified vehicle loan interest from 2025 through 2028.
Income must fall under $100K (single) or $200K (married) for full eligibility, with a complete phaseout above $149K and $249K, respectively.
It only applies to new vehicles assembled in the U.S. and used for personal (not commercial) purposes.
And the loan must come from a qualified lender, not friends, family, or seller financing, David Mellem, with Ashwaubenon Tax Professionals, shared via CNN.
Even for those who qualify, the savings are limited if import tariffs raise MSRPs:
If prices go up 3%, the ITEP projects the deduction will cover about a third of the increase.
At 5%, it covers a quarter or less.
At 10%, most buyers will only see about 10–15% of that cost offset.
What that looks like in real life: A typical buyer financing a $40,000 American-made car might save about $500, but still pay over $2,200 more because of the tariff, according to the ITEP.
Buyers who don’t qualify won’t get any offset. They’ll take on the full impact of the higher price.
Also worth noting: If tariffs raise both the upfront cost and the size of the loan, total payments go up.
But because only a portion of the interest is deductible—and only within that four-year window—most buyers will still end up paying more overall.
For dealers: Some middle-income buyers financing U.S.-assembled models might bring it up, though for most deals under $30K, the deduction won’t move the payment meaningfully enough. Still, it could help with select domestic SUV or truck shoppers in the $35K–$45K range if they’re in the income sweet spot and know it applies.
Bottom line: It’s a limited tool with narrow eligibility, and early signals suggest it won’t meaningfully offset cost increases for most shoppers.
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