Want to deduct up to $10,000 a year on your car loan interest? Here are the requirements to qualify and how to apply
The Republicans’ tax-cuts and spending bill, signed into law by President Trump this month, includes a potential tax break for car buyers.
As part of the ‘Big Beautiful Bill’, some U.S. taxpayers will be able to claim back the interest they pay if they take out a loan to buy a car.
How much interest can you get back?
Signed into law by President Trump on July 4, the Republicans’ tax-cut and spending package includes the USA Car Act, which enables Americans to apply for a tax deduction of up to $10,000 a year on car-loan interest.
To qualify for the write-off, the vehicle must have been assembled in the U.S.
This America-made requirement is consistent with Trump’s ongoing bid to encourage domestic manufacturing - a drive which has been most visible in the president’s aggressive policy of tariffs on foreign imports.
“Ensuring every car sold in America is made in America”
“We are finally ensuring every car sold in America is made in America and that working Americans can actually afford to buy a car in the first place,” says the USA Car Act’s sponsor, Senator Bernie Moreno (R-OH).
It is important to highlight, however, that the ‘Big Beautiful Bill’ also stands to diminish many everyday Americans’ purchasing power in significant ways.
For example, the legislation will make it harder for low-income households to qualify for the Supplemental Nutrition Assistance Program (SNAP). The food-stamps scheme benefited around 41 million people in 2024, says the Center on Budget and Policy Priorities.
What’s more, the GOP bill means that earners under $18,000 face a reduction in their after-tax income, according to calculations by Penn Wharton Budget Model.
How can you claim the USA Car Act deduction on car-loan interest?
The USA Car Act applies to loans taken out to buy new U.S.-assembled cars from January 1 this year. It is due to run until the end of 2028.
Per ABC News, the interest write-off can be claimed on cars, motorbikes, SUVs, minivans, vans and pickup trucks under 14,000 lbs.
The scheme comes with an earnings limit: it phases out for individuals earning between $100,000 and $150,000 a year, and joint filers on $200,000 to $250,000. It is unavailable to Americans whose yearly income exceeds those individual/joint amounts.
You can apply for the USA Car Act annual deduction when you file your federal returns for the 2025, 2026, 2027 and 2028 tax years.
How much will the average car buyer save?
Jonathan Smoke, the chief economist at Cox Automotive, told ABC News that the average buyer of a new vehicle is in line to net a saving of around $2,200 over four years.
Cox added that loans are involved in about 60% of vehicle sales at U.S. dealerships.
“[The tax deduction] certainly will get people moving and certainly help the market, I think in the near future,” Lou Vitantonio, the head of the Greater Cleveland Auto Dealers Association, told News 5 Cleveland.
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