GOP Proposed a $10,000 Tax Break on Car Loans—With a Big Catch

If the GOP’s “One Big Beautiful Bill” is signed into law, car buyers could get some extra tax relief. The legislation currently allows taxpayers to deduct up to $10,000 in auto loan interest. But the deduction comes with some big catches—and it’s unclear whether the bill, as is, will pass the Senate. 

How Big Is the Deduction, and Who Qualifies?

The “no tax on car loan interest” provision allows taxpayers to deduct up to $10,000 of certain auto loan interest. It’s an “above-the-line” deduction, meaning you can use it even when taking the standard deduction. From the wording of the bill, it seems that the $10,000 limit is an overall limit, rather than a per-year limit.

Phasing Out

Beyond that, there’s a lot of fine print to navigate. For starters, the deduction is temporary, lasting only from tax year 2025 to tax year 2028. 

It also begins phasing out once a single taxpayer’s adjusted gross income (AGI) exceeds $100,000 or when two joint taxpayers’ AGI exceeds $200,000. Specifically, the deduction gets reduced by $200 for each $1,000 of AGI over the appointed thresholds.

Domestic Cars Only

Most notably, while the deduction applies to many passenger vehicle types, including cars, vans, SUVs, pickup trucks, motorcycles, and ATVs, the vehicles must have been assembled in the U.S. 

“This tax deduction would tend to promote domestic car ownership,” said Mark Luscombe, principal analyst at Wolters Kluwer Tax & Accounting. 

According to research from car leasing marketplace CarEdge, there are 117 new car and truck models with final assembly in the U.S., including popular Ford, General Motors, and Tesla vehicles.

Other Restrictions

You also can’t claim the deduction when financing a:

• Leased vehicle
• Fleet of vehicles  
• Commercial vehicle that’s not for personal use
• Vehicle with a salvage title
• Vehicle used for scrap or parts 
• Vehicle you previously purchased using a personal cash loan

It’s currently unclear whether or not the deduction applies to used auto loans in addition to new auto loans.

How Much Money Can You Save?

If you meet all the requirements, the deduction could save you some money.

Example A

Say, for instance, you borrow $30,000 at a 6.35% annual percentage rate (APR)—the average APR on new cars as of Q4 2024—to buy a 2024 Ford Escape over 60 months, and you pay about $1,019 in auto loan interest this year.   

Your AGI as a single filer starts at $70,000. If you simply took the standard deduction of $15,000, your taxable income would net out at $55,000, meaning you’d pay around $7,014 in taxes for 2025.

However, if you took the above-the-line auto loan interest rate deduction, your AGI before taking the standard deduction becomes $68,981. Now, taking the standard deduction, you’d pay around $6,790, a net savings of $224.

Example B

You can save much more if you have a high-interest auto loan, or if the deduction enables you to drop into a lower tax bracket.

For instance, say that due to poor credit, you’re paying a 15.75% APR on a 60-month $40,000 loan on a Tesla Model 3. In this scenario, you’d pay $3,609 in interest in 2025. 

You file jointly, make $199,000 in combined income, take the standard deduction of $30,000, and pay $27,008 in income tax. If you first deduct your auto loan interest, you’d pay $26,214, for a savings of almost $800.

“With car prices and loan interest rates higher than usual, a $10,000 tax break could tip the scales for buyers on the fence,” said Paul Miller, managing partner and certified public accountant (CPA) at Miller & Company, LLC.

Objections to the Bill—Will It Pass?

Any savings are currently theoretical. While the budget bill passed the House in late May, it has yet to pass the Senate, and some GOP senators have expressed concerns about the package. For instance, Sen. Rand Paul of Kentucky wants to strip out a provision that raises the debt ceiling, while Sen. Josh Hawley of Missouri opposes deep cuts to Medicaid benefits. 

However, the tax deduction on auto loan interest was a key Trump campaign, and, thus far, there’s been no widespread criticism of the deduction’s inclusion in the budget legislation.

“It is probably fairly likely to remain in the final bill,” Luscombe said. “The main risk that it would appear to face is from the overall concern about adding to the deficit. That concern could result in searching for provisions to reduce [the] cost of the bill if enough revenue offsets or cost cuts cannot be found.”

If the Senate changes the bill, it must go back to the House for approval before hitting Trump’s desk for his signature. The president has urged Republican Congress members to complete this process by July 4.