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By Suzanne Blake
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Around 100 million Americans are urged to check if they’re eligible for a new tax credit that rewards buyers of American-made cars.
The One Big, Beautiful Bill Act (OBBA) approved a new tax credit that allows Americans to deduct part of the interest they paid on a car loan in 2025, but it applies only to new vehicles that underwent final assembly in the United States.
Why It Matters
OBBA ushered in a series of new tax rules. Because of new rules, such as no tax on tips and overtime, as well as the expanded child tax credit, IRS refunds are set to increase by an average of $1,000 per household, the Treasury Department said.
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More than 100 million households are set to receive a refund this year. For American families with two children, the average tax cut will be $1,700 because of the enhanced child tax credit.
New Auto Loan Interest Deduction
Taxpayers who make $150,000 or less ($250,000 or less for joint filers) could qualify for the new auto loan deduction.
The exact eligibility requirements stipulate that you must have purchased a new vehicle in 2025 that underwent final assembly within the United States.
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If you fit all the requirements for the credit, you will be able to subtract up to $10,000 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. “Everyone should first understand that the final regulations and IRS guidance are not scheduled to be released until the end of February, giving tax preparers a whole six weeks to plan for proper reporting. I think this one will be messy.”
Who's Eligible for New Auto Loan Interest Deduction?
In 2025, only around 30 percent of cars sold in the country underwent final assembly within the U.S., according to the National Highway Traffic Safety Administration. All cars under the credit must have been purchased for personal use, with the loan originating after December 31, 2024.
Across the country, roughly 100 million Americans have car loans, but only a select few will actually be eligible for the credit.
How Much Is the Auto Loan Interest Deduction Worth?
Generally, Americans can deduct up to $10,000 per year in interest on qualifying new car loans. While no itemizing is required, the car must be new, for personal use, and assembled in the U.S.
Financially, your tax savings depend on your marginal tax bracket.
So those in the 10 percent bracket, for example, would likely save around $1,000, while those in the 22 percent bracket could save $2,200.
“The new auto loan interest deduction, up to $10,000, introduces an interesting dynamic, particularly because you do not have to itemize to benefit,” Kevin Thompson, the CEO of 9i Capital Group and the host of the 9innings podcast, told Newsweek. “This is an above-the-line deduction, meaning it directly reduces your taxable income, which makes it far more impactful than many traditional deductions.”
How to Check If Your Car Qualifies for the New Tax Deduction
To check if you’re eligible, you’ll need to ensure your loan originated in 2025 or later, that the vehicle is new, for personal use, and secured by a lien. On top of this, you should look at the VIN to double-check that the final assembly occurred in the U.S. and that you have loan interest documents for the year.
If all of this is true, 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 new auto loan interest deduction is a reflection of just how difficult vehicle affordability has become in our current economy. While it won’t dramatically lower the cost of buying a car, it does provide modest tax relief for middle-income Americans who are already facing elevated interest rates. The key thing taxpayers should understand is that a deduction reduces taxable income, so the real savings will vary depending on income level and eligibility requirements.”
Drew Powers, the founder of Illinois-based Powers Financial Group, told Newsweek: “A tax deduction is always good for the taxpayer, even if it is messy. Amid the chaos, the good news is this first tax filing should be the hardest one, and will only apply to those who purchased a qualifying car with a qualifying loan in 2025. I believe we can expect the future years to run a little smoother.”
9i Capital Group CEO Kevin Thompson told Newsweek: “For Americans who can already afford a new vehicle, this is clearly a benefit. But the larger question remains: where is the money coming from to fund these tax breaks? When the government runs persistent deficits, these incentives are effectively financed through borrowing, borrowing that carries interest and ultimately falls back on taxpayers. I view this as a short-term win with potential long-term consequences, adding to government spending under the backdrop of what is supposed to be deficit reduction.”
What Happens Next
For American families that already have a car purchased in the last year or plan to purchase one in the future, the new car loan deduction could offer modest savings, Beene said.
“For households that were already planning to buy a vehicle, this could make tax season slightly less expensive,” he said. “Ultimately, this is minimal relief in the broader challenge of vehicle affordability.”
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