Major Auto Loan Tax Break Now Active: Save Thousands on New US-Made Vehicles
Major Auto Loan Tax Break Now Active: Save Thousands on New US-Made Vehicles
A significant federal tax deduction for interest paid on new vehicle loans is now active, offering potential savings of thousands of dollars for eligible buyers starting with loans issued in 2025. This new tax break, signed into law as part of a broader tax-cut bill, aims to make car ownership more affordable and stimulate domestic auto production.
Qualifying taxpayers can deduct up to $10,000 annually in interest payments on loans for new vehicles purchased for personal use. Crucially, the vehicle must be assembled in the U.S., and the loan must have been issued no earlier than 2025. The deduction applies to a wide range of light vehicles, including cars, trucks, SUVs, and motorcycles, and is available even to those who claim the standard deduction, unlike the traditional home loan interest deduction.
However, there are income limitations: the deduction phases out for individuals earning between $100,000 and $150,000, and for joint filers with incomes between $200,000 and $250,000, becoming unavailable above these thresholds. Experts estimate that millions of new vehicle loans could be eligible, potentially saving an average buyer around $2,200 over four years on a typical loan at current interest rates.
The tax break’s impact extends beyond federal taxes, as it reduces a taxpayer’s federal adjusted gross income, which many states use as a baseline for calculating state income taxes, potentially leading to additional state-level savings. While some industry analysts are skeptical of its power to significantly boost overall sales, they agree it could influence buyers to finance new, American-made vehicles rather than paying cash or leasing.
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