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Tucked inside President Trump’s recently signed tax law is a provision aimed squarely at reshaping consumer behavior. Starting in 2025, buyers who finance a new car assembled in the U.S. can claim a tax deduction on the loan interest they pay.
On paper, it’s a significant shift. The measure applies to any passenger vehicle — gasoline, hybrid, or electric — so long as final assembly takes place at a U.S. plant. However, unlike the soon-to-expire $7,500 federal EV credit, which offered an immediate discount at the time of purchase, the new benefit works more like a traditional tax deduction. Buyers won’t see the money until they file their returns the following year.
The law allows taxpayers to deduct interest on loans for eligible vehicles purchased between 2025 and 2028. It applies only to new vehicles for personal use, so leases and used cars don’t qualify. Notably, the incentive phases out at $100,000 for individuals and $200,000 for couples filing jointly.
Yet with the average new vehicle costing nearly $50,000, how many households under those limits can realistically participate? Since lenders typically cap monthly car payments at 15–20% of a buyer’s income, consumers need at least $50,000 a year in earnings just to get into today’s average new car. Analysts estimate the average benefit will be far from a bonanza: around $576 in the first year, shrinking to just $36 by year six. That's because the annual amount of interest paid on a car loan diminishes over time. Initially, a greater portion of each car loan payment goes toward interest. In later years, most of it goes toward the principal.
Still, automakers with extensive U.S. assembly operations could gain a marketing edge. Models such as the Acura MDX, Acura RDX, BMW X3, BMW X5, Ford F-150, Hyundai Tucson, Jeep Grand Cherokee, Mazda CX-50, Mercedes-Benz GLE, Subaru Outback, Tesla Model Y, Toyota Camry, Toyota Highlander, Volkswagen Atlas Cross Sport, and Volvo S60 qualify, even in higher-priced trims.
However, the incentive largely circumvents the entry-level market. Consider the Honda Civic Hatchback. It's built in Greensburg, Indiana, but the Civic Hybrid Sedan is built in Ontario, Canada, and isn't eligible for the tax break. The Chevrolet Trax and Buick Envista are manufactured at the GM Changwon Plant in South Korea and don’t qualify. That's not unusual, as most affordable vehicles are built in Mexico or South Korea to keep their prices low. As a result, few price-sensitive consumers will benefit from the new tax break. You might be surprised at which vehicles actually qualify. The Toyota Sienna minivan, built in Lafayette, Indiana, qualifies, but the Chrysler Pacifica, built in Windsor, Ontario, Canada, doesn't. As you may have surmised, the tax break supports American manufacturing, not American corporations.
Consumers will need to rely on the Monroney window sticker, as it lists a vehicle's final assembly location. You can also use the Vehicle Identification Number, or VIN, to confirm a car's assembly location. VINs starting with 1, 4, or 5 are U.S.-assembled, but you can confirm that by using the federal VIN decoder and entering a vehicle’s 17-digit VIN.
While Trump’s tax break is meant to encourage domestic production by nudging consumer demand toward vehicles built on U.S. soil, it remains to be seen if this incentive meaningfully influences shopping decisions. The deduction ends in 2028, and its renewal will depend on Congress and the White House at that time. Therefore, a new six- or seven-year loan will only provide three years of guaranteed relief. For automakers and dealers, the provision may provide a new selling tool — especially for manufacturers that already assemble much of their product line in the U.S. For consumers, it adds yet another wrinkle to the already complicated process of buying a new car.
This story was originally reported by Autoblog on Aug 29, 2025, where it first appeared in the News section. Add Autoblog as a Preferred Source by clicking here.
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