A fresh, aggressive plan by House Republicans could allow interest on car loans to be deductible from taxes, up to $10,000 per year. It was born last October 2024, first spoken about by then-President Donald Trump during a campaign stop at the Detroit Economic Club. Now it is included in a broad GOP tax blueprint released in May 2025.
The reduction is coming in the guise of a boon for middle-class workers to ease the bite of high-priced automobiles and increased interest rates. But not all debtors would qualify, and the benefit may not be permanent.
Who would get the deduction?
The legislation would implement an above-the-line deduction, so it would apply to itemizers and those who take the standard deduction — a big win for the average taxpayer. It does phase out, however, depending on income. Single filers with incomes over $149,000 and joint filers with incomes over $249,000 would not be eligible, according to the Tax Foundation.
The tax deductible would be only the interest on auto loans purchased between 2025 and 2028. Auto loans must be utilized to buy vehicles that are made in America, including sedans, trucks, motorcycles, RVs, and even ATVs.
How much could you save?
Though the cap is $10,000, that’s not what most would deduct. Car loans are amortized, meaning interest payments are greater up front in a loan. For instance, on a $42,000 9.5% interest loan, borrowers would pay approximately $3,750 in the first year.
A 24% bracket taxpayer would save about $900 in that initial year. However, the savings reduce over time since payments of interest are lower.
Will used cars count?
One big question is whether the deduction would apply to used car loans. The bill language doesn’t yet specify, so many Americans won’t know if their buys are covered. Experts like Mark Luscombe of Wolters Kluwer expect the details will be ironed out in Congress, where competitive bills offer different limits and ranges.
Industry impact and buyer challenges
The hoped-for deduction could prop up a struggling car industry. The University of Michigan predicts auto sales will drop in the second half of 2025 due to exorbitant prices and tariffs. A tax rebate could encourage more buyers if they can obtain a loan.
That is a big “if.” Federal Reserve surveys show rising rejection fears and rising levels of “discouraged borrowers.” Credit has become tighter, particularly for individuals with lower credit scores.
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Last thoughts
The GOP proposal won’t bring new vehicles within reach, but it will ease things a bit — if the bill is enacted. Sky-high costs, loan terms, and credit barriers remain monumental hurdles. Still, if the bill is signed into law, millions of Americans may be able to make it to a new vehicle a bit more easily.
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