On the Dash:
- The deduction applies to new, U.S.-assembled vehicles purchased from 2025 to 2028.
- The deduction applies at tax time, not at the point of sale.
- Eligibility is limited to individuals earning under $100,000 and couples under $200,000.
Car buyers in the United States will soon have a new tax incentive to consider at the dealership. Under President Donald Trump’s recently enacted tax law, interest paid on loans for new vehicles assembled in the U.S. will qualify for a deduction on federal tax returns beginning in 2025.
The measure replaces the federal $7,500 electric vehicle tax credit, which expires in September. Unlike the EV credit, which reduced the purchase price immediately, the new deduction applies annually at tax time. It covers all new vehicles regardless of whether they are gas-powered, hybrid, or electric, as long as they are built domestically. Leases and used cars are excluded. The program is set to run through 2028.
Industry analysts estimate that between 1 million and 1.8 million of the 16 million vehicles expected to sell in the U.S. this year could qualify. Popular models like the Ford F-150, Jeep Grand Cherokee, and Tesla Model Y meet eligibility requirements, while many of the most affordable vehicles, including the Nissan Versa, Chevrolet Trax, and Hyundai Elantra, do not, since they are assembled abroad.
The deduction is limited by income. Single taxpayers earning under $100,000 or married couples earning under $200,000 will qualify for the full benefit, with the value phasing out above those thresholds. While the intent is to boost sales of U.S.-made cars and trucks, affordability remains a question since the average new vehicle now costs nearly $50,000.
The potential savings are also modest compared to the expiring EV credit. Based on average loan amounts and interest rates from Experian, the deduction could be worth about $576 in the first year, tapering to around $36 in the sixth year of a standard loan term. The total value depends on factors such as income, marginal tax rate, and whether Congress extends the incentive beyond 2028.
For dealers, the change could create new opportunities to market U.S.-built models, though consumers will need to carefully review eligibility. Vehicle assembly information is available on window stickers or through NHTSA’s VIN Decoder.
