Senate Bill Aims to Reduce Tax on Loan Interest for U.S.-Built Cars

Car and Driver

16 hours ago

The U.S. Senate passed the One Big Beautiful Bill on Tuesday, which contains a proposed tax deduction for new car loans.
The deduction would only apply to cars with final assembly in the United States and doesn't include fleet sales or commercial vehicles.
The bill also has provisions to reduce the deductible amount for taxpayers who have an adjusted gross income of more than $100,000.
The latest version of the One Big Beautiful Bill contains a provision that aims to reduce thousands of dollars in interest on new car loans for taxpayers. The United States Senate passed the tax and policy bill on Tuesday, sending it back to the House of Representatives for final approval, which President Donald Trump wants to happen before July 4. Along with accelerating the removal of federal EV tax credits, the act contains a section titled "No Tax on Car Loan Interest."
The proposed deduction isn't as straightforward as that title, however, with a number of caveats. The biggest qualifier is that the vehicle being purchased "shall not include any vehicle the final assembly of which did not occur within the United States," according to the currently available text of the bill. This requirement that the car be built in the U.S. ties in with President Trump's goal to increase domestic automotive manufacturing, which he has so far attempted to instigate through hefty tariffs on imported vehicles. While some automakers have since invested in increased U.S. production, many popular vehicles are still produced overseas and imported into the United States.
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The bill also states that applicable vehicles are those that are "manufactured primarily for use on public streets, roads, and highways" and are "a car, minivan, van, sport utility vehicle, pickup truck, or motorcycle." The vehicle must have a gross vehicle weight rating of under 14,000 pounds, and the loan cannot be for fleet sales or "a commercial vehicle that is not used for personal purposes." The bill also excludes loans to finance vehicles with a salvage title or vehicles that are going to be used for parts.
There are also exceptions based on the income of the taxpayer who is leasing the vehicle. The deductible amount will be reduced by $200 for every $1000 that the adjusted gross income of the taxpayers exceeds $100,000. For jointly filed tax returns, the threshold is $200,000 of income.
The proposal also covers a maximum of $10,000 in interest for each taxable year. According to the , the only buyers who could receive the maximum deduction are those with new car loans of $110,000 or higher. The publication quoted Jonathan Smoke, an economist at market research firm Cox Automotive, who said that just one percent of loans in the U.S. are over that mark.
Instead, the average car loan is around $43,000, with Smoke telling the Times that average buyers will be see a $3000 reduction in the first year of a six-year loan, although most buyers would only receive a roughly $500 reduction in the first year, and that the amount would shrink with each subsequent year. The bill still needs to be approved by the House before it can be signed into law by the president, and President Trump has expressed a desire to pass the bill by July 4.
Caleb Miller
Associate News Editor
Caleb Miller began blogging about cars at 13 years old, and he realized his dream of writing for a car magazine after graduating from Carnegie Mellon University and joining the Car and Driver team. He loves quirky and obscure autos, aiming to one day own something bizarre like a Nissan S-Cargo, and is an avid motorsports fan.