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It started out as a presidential campaign promise and, during the Trump Administration’s first 100 days in office, it became a way to appease anyone and everyone concerned about tariffs’ impact on affordability. Now, there are multiple bills in Congress pushing for it, too.
The question is: Would a tax deduction on auto loan interest paid toward an American-made car make any real difference to the average American car-buyer?
Sen. Bernie Moreno (R-OH) and Rep. David Taylor (R-OH), who introduced the USA CAR Act in April — and Rep. Bill Huizenga (R-MI), who introduced the Made in America Motors Act in May — would bring the president’s promise to fruition. The potential deduction has also been taken up as part of Congressional Republicans’ budget reconciliation process.
Bankrate requested comment from these legislators more than a week before publishing our story but didn’t receive a response. We did speak to economists and experts who are skeptical of such a tax deduction’s significance.
The effect of an interest deduction impact on your wallet
Cox Automotive chief economist Jonathan Smoke and his team ran the numbers using today’s average auto loan interest rates and loan terms. The analysis determined that if the average car owner pays $2,000 in interest over the course of a year, they could save $400 on their taxes.
For comparison, during President Trump’s first term and amidst the COVID-19 pandemic, his administration provided a $400 boost to unemployment benefits — weekly.
Smoke says an auto loan interest deduction, if it comes to pass, could inspire the typical cash-buyer to borrow instead. But he doesn’t see the deduction impacting consumer choice or the Trump Administration’s broader goal of making more vehicles here in the U.S.
“I don’t know of many people who would decide that they can buy a car because they’re going to cut their taxes by $400,” Smoke says. “So, we don’t think it’s as exciting a proposition for driving more vehicle sales.”
For its part, the budget reconciliation bill currently proposes the deduction as “above the line,” meaning that you could still qualify for it even if you itemize. Rep. Huizenga’s proposal would allow you to deduct up to $2,500 in auto loan interest annually for American-made cars purchased in 2025 or later; the reconciliation bill allows you to deduct up to $10,000 in interest.
Bankrate insights
About 10 percent of American taxpayers itemized deductions in 2020, according to the Tax Policy Center’s analysis, forgoing the standard deduction.
Smoke isn’t alone in his skepticism. J.P. Morgan analysts told reporters in late March that the proposed deduction would drop borrowers of new-car auto loan payments by about $20 per month, $240 per year — far less than the expected spike in car prices and, therefore, higher loan amounts caused by tariffs.
What about tax deductions on other loans?
| Deduction for… | Can you claim it without itemizing? | Annual relief | Fine print |
| Auto loan interest (proposed) | Possibly | $400 (average) | It’s only a proposal at this point. |
| Student loan interest | Yes | Up to $2,500 (maximum) | Income limits determine whether you qualify for the full, partial or no deduction. |
| Mortgage interest |
No |
Up to $375,000 if you’re married and filing separately, or $750,000 (maximum) | Interest on home equity loans or lines of credit can also be deducted if the funds were used to buy, build or improve your property. |
Keep in mind:
The mortgage interest tax deduction is more valuable, in part, because the average home loan debt in 2024 ($252,505) is more than 10 times the average auto loan amount ($24,297) for the same year, according to Experian.
What happens next?
There might be other downsides to an auto loan interest deduction that go beyond our personal finances, such as a reduction in federal revenue. But we’ll leave that discussion to economists in the federal space. For the time being, the Trump Administration and at least some members of Congress seem intent on pushing it forward.
Republicans’ auto loan interest deduction in the budget reconciliation proposal
- Above-the-line deduction for tax years 2025 through 2028
- Deduct up to $10,000 spent toward auto loan interest
- The deduction’s benefit begins phasing out when your income exceeds $100,000 (or $200,000 for joint tax returns)
- Eligible passenger vehicles: car, minivan, van, sport utility vehicle, pickuptruck or motorcycle as well as all-terrain and recreational vehicles
- Final assembly of the vehicle must occur in the U.S.
President Trump couldn’t mandate such an interest rate deduction via an executive order. And though Republicans have brought the conversation to the fore in Congress, it has a long way to becoming a law, given Republicans’ thin majority in both chambers. However, the Republicans’ budget reconciliation bill, which wouldn’t require Democratic support, might be the likeliest path forward. Stay tuned.
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