Getting Trump's full tax break on car loans may mean buying a $130,000 vehicle

CNBC

7 hours ago

Republicans are trying to make good on President Donald Trump's campaign promise to give Americans a tax break on their car loan interest. However, as structured, most households wouldn't get a substantial financial benefit, economists said.
House and Senate Republicans proposed giving drivers a tax deduction of up to $10,000 on annual interest for new auto loans in their so-called "One Big Beautiful Bill Act." The tax break would be temporary, ending after 2028.
But few drivers pay that much annual interest, said Jonathan Smoke, chief economist at Cox Automotive, an auto market research firm.
It's "pretty rare," he said.
Auto loans don't have annual interest charges of $10,000 or more outside of large loans on "exotic" vehicles, Smoke said.
How large would the loan have to be?
It would take a loan of roughly $112,000 to use up the full $10,000 deduction in the first year of car ownership, Smoke said.
Only about 1% of new auto loans are this big, according to Cox Automotive data.
Cars most likely to see loans of that magnitude include a "laundry list of exotic names" like Rolls-Royce, Ferrari, Bentley, Aston Martin, Lamborghini, McLaren, Porsche, Land Rover, Cadillac, Maserati, Lotus and Mercedes-Benz, Smoke said.
Smoke's analysis assumes drivers use the most popular loan length, 72 months at the current new loan average of around 9.5%. It includes a 10% down payment and various fees like taxes and registration.
The example implies a vehicle purchase price of about $130,000, he said.
Vehicles with an average purchase price near this level include a Porsche Panamera or Cadillac Escalade, he said. Monthly car payments under those loan terms would likely be more than $2,000, Smoke said.
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House Republicans included the tax break on auto loan interest in a massive domestic policy bill, the "One Big Beautiful Bill Act," which lawmakers narrowly passed along party lines in May. The Senate may vote on a similar measure as soon as this week.
In practice, few if any households would likely claim the full benefit due to an income limitation, experts said.
Both versions of the legislation reduce the value of the car loan interest tax deduction once an individual's annual income exceeds $100,000, or $200,000 for married couples filing a joint tax return. Households below those thresholds may qualify for the full tax benefit, but are unlikely to buy an expensive enough car to do so, economists said.
Those drivers who might qualify to take on a six-figure car loan are unlikely to maximize the tax break, either. Taxpayers don't get a financial benefit once income exceeds $150,000 (or $250,000 for married couples), according to the Institute on Taxation and Economic Policy, a left-leaning think tank.
Qualifying cars must also receive final assembly in the U.S., according to current legislative text, potentially further limiting the potential roster of vehicles.
The average car loan so far in 2025 is about $43,000, according to Cox Automotive data.
Under Republicans' tax plan, the average buyer would get a tax deduction of about $3,000 in the first year of a six-year loan (and a roughly $2,000 average annual deduction over the loan's life), Smoke said.
However, based on the way tax deductions work, this wouldn't mean car buyers get $3,000 in their pocket the first year.
That $3,000 would be deducted from the buyer's taxable income.
"The math basically says you're talking about [financial] benefit of $500 or less in year one," and a declining value in subsequent years, Smoke said. That's less than the average monthly payment on a new loan, he said.