Imagine saving thousands on your next car purchase through a federal tax break. That’s the promise of a new law signed by President Donald Trump, offering a deduction on auto loan interest for certain buyers. But will this really move the needle for consumers or the auto industry?
According to AP News, on July 4, 2025, Trump signed a tax-cut law that introduces a deduction for interest paid on loans for new, U.S.-assembled vehicles, aiming to ease car ownership costs and boost domestic production.
This isn’t like the well-known home loan interest deduction, which requires itemizing. Remarkably, this auto loan break applies even if you take the standard deduction, making it accessible to a broader swath of taxpayers. It’s applied before calculating adjusted gross income, potentially trimming state taxes too, in many areas.
The deduction isn’t a free-for-all. It’s limited to new vehicles—sorry, used car hunters—and they must be assembled in the U.S., regardless of the automaker’s headquarters. Only loans issued in 2025 or later qualify, and the deduction caps at $10,000 of interest annually through 2028. Eligible vehicles include cars, SUVs, motorcycles, minivans, vans, and light pickup trucks under 14,000 pounds. Fleet or commercial purchases are excluded.
Income limits apply as well. Individuals earning between $100,000 and $150,000 see the benefit phase out, as do joint filers between $200,000 and $250,000. Above those thresholds, you’re out of luck.
Not all brands are equal under this law. All Tesla and Acura vehicles sold in the U.S. are domestically assembled, as are all GM Cadillacs. Ford shines with 78% of its U.S.-sold vehicles made here, though the Mustang Mach-E, built in Mexico, won’t qualify.
Contrast that with GM’s Chevrolet (44%) and Buick (14%) for U.S. assembly rates. Japanese brands like Honda (60%), Toyota (52%), and Nissan (48%) often outpace some American nameplates in domestic production. Buyers must check the assembly location carefully.
Last year, U.S. dealers sold 15.9 million new light vehicles, with just over half made domestically, per Cox Automotive. About 60% of retail sales are financed, and roughly 3.5 million loans could qualify for this break in 2025 if trends hold.
Let’s crunch the numbers. On an average $44,000 loan at 9.3% interest over six years, Cox Automotive’s Jonathan Smoke estimates a tax savings of about $2,200 over four years. At a lower 6.5% rate, per the American Financial Services Association, savings shrink further.
Yet, Smoke cautions that the annual savings are less than a single monthly payment. Is this enough to sway a purchase? He doubts it, saying, “I don’t think it moves the needle on somebody on the fence.”
Still, Smoke adds, “It could influence their decision to finance that vehicle instead of paying cash or leasing.” At Bowen Scarff Ford in Kent, Washington, General Manager Paul Ray is more optimistic, noting, “I think it’s going to help incentivize vehicle purchases.”
Dealerships are already promoting the break—Bowen Scarff Ford’s website touts it alongside a soon-ending EV credit. Customers were asking about the deduction even before the bill passed. But is this just marketing hype?
Celia Winslow of the American Financial Services Association sees potential, stating, “For some people deciding—should I buy it or not—this could tip the scale.” Trump himself claimed it would “stimulate massive domestic auto production.” Skeptics among us, though, question if a modest deduction can truly rev up an industry.
For wealth builders, here’s the takeaway: if you’re eyeing a new U.S.-made vehicle in 2025, financing could net you a small tax edge. Research qualifying models—stick to brands with high domestic assembly rates—and weigh if the savings justify the debt. In a market where efficiency and frugality reign, this break is a tool, not a game-changer.