Around 100 million Americans are being encouraged to find out whether they qualify for a new tax benefit aimed at buyers of American-assembled cars.
Under the One Big, Beautiful Bill Act (OBBA), taxpayers may be able to deduct a portion of the interest they paid on an auto loan in 2025. The catch: the deduction applies only to new vehicles that underwent final assembly in the United States.
Why It Matters
OBBA introduced multiple tax changes. The Treasury Department has said refunds are expected to rise by an average of $1,000 per household, driven by provisions such as no tax on tips and overtime and an expanded child tax credit.
More than 100 million households are expected to receive a refund this year. For families with two children, the average tax cut is projected to be $1,700 due to the enhanced child tax credit.
New Auto Loan Interest Deduction: Key Rules
To be eligible, taxpayers generally must meet all of the following:
- Income limits: $150,000 or less (or $250,000 or less for joint filers)
- Vehicle purchase: a new vehicle purchased in 2025
- Assembly requirement: the vehicle must have undergone final assembly in the United States
- Loan timing: the loan must originate after December 31, 2024
- Use: the vehicle must be for personal use
If you meet the requirements, you can deduct up to $10,000 of interest from your taxable income, lowering the amount you owe.
“As with all things related to taxes, this provision is far more complicated than advertised,” Drew Powers, the founder of Illinois-based Powers Financial Group, told Newsweek. He added that final regulations and IRS guidance are expected at the end of February, leaving limited time for tax preparers to plan and report accurately.
Who’s Most Likely to Qualify?
In 2025, only about 30 percent of cars sold in the U.S. underwent final assembly in the country, according to the National Highway Traffic Safety Administration. While roughly 100 million Americans have car loans, the combination of assembly rules, purchase timing, and income limits means many won’t qualify.
How Much Could You Save?
The deduction can be worth up to $10,000 per year in qualifying auto-loan interest, and you do not need to itemize to claim it.
Your actual tax savings depend on your marginal tax bracket. For example:
- In the 10% bracket, a $10,000 deduction could reduce taxes by about $1,000
- In the 22% bracket, it could be about $2,200
Kevin Thompson, CEO of 9i Capital Group and host of the 9innings podcast, told Newsweek the “above-the-line” nature of the deduction makes it more impactful than many traditional deductions, since it directly reduces taxable income.
How to Check If Your Car Qualifies
To verify eligibility, make sure:
- Your loan originated in 2025 or later
- The vehicle is new and for personal use
- The loan is secured by a lien
- Your vehicle’s VIN confirms final assembly occurred in the U.S.
- You have documentation showing interest paid during the year
If everything checks out, you can claim up to $10,000 of interest paid on your tax return.
What People Are Saying
Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, told Newsweek the deduction reflects how difficult affordability has become, calling it “modest tax relief” that will vary based on income and eligibility.
Powers said that even if the first year is complicated, future filings could get smoother—especially since it applies only to qualifying purchases and loans in 2025.
Thompson also questioned the long-term fiscal impact, arguing that incentives funded through persistent deficits can create future costs that ultimately fall back on taxpayers.
What Happens Next
For households already planning to buy a new vehicle, the deduction could make tax season a bit less expensive, Beene said—but he emphasized it’s still limited relief compared with the broader challenge of high vehicle prices and interest rates.
