Understanding this legislation is key to guiding customer conversations and reinforcing trust in the financing process.
On the Dash:
- A new 2025 tax law allows qualifying buyers to deduct up to $10,000 in annual auto loan interest.
- Only new, U.S.-assembled vehicles weighing less than 14,000 pounds qualify for the deduction.
- Dealers must verify eligibility and can use this rule to strengthen financing conversations.
A new tax deduction taking effect in 2025 will allow qualified car buyers to write off up to $10,000 in annual auto loan interest for vehicles assembled in the United States. The legislation applies to new personal-use cars, SUVs, pickups, minivans, and motorcycles purchased between 2025 and 2028, adding a potential tax benefit to the buying decision.
While the deduction could make vehicle ownership slightly more affordable, eligibility restrictions mean only a portion of buyers will qualify. The program excludes pre-owned, commercial, and fleet vehicles, and limits deductions to models with final assembly in the U.S.—a rule expected to disqualify roughly half of all cars sold domestically.
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Income thresholds also restrict eligibility. Single filers earning up to $100,000 and joint filers earning up to $200,000 can claim the full deduction. The benefit phases out entirely at $150,000 for single filers and $250,000 for joint filers, decreasing by $200 for every $1,000 of income above the base limits. Buyers who refinance loans can continue deducting interest, but only up to the original loan amount.
Dealers will play a central role in helping buyers confirm vehicle eligibility. Federal law already requires final assembly information to be listed on all new-vehicle labels. For online or out-of-area transactions, the NHTSA’s VIN Decoder provides an additional verification tool that can help dealers demonstrate transparency and expertise.
Eligible consumers will see moderate savings. For example, a buyer in the 22% tax bracket paying $1,900 in annual interest would lower their tax bill by roughly $400. Because interest payments decrease each year, total tax benefits will decline over time.
For dealerships, understanding this legislation is key to guiding customer conversations and reinforcing trust in the financing process. The rule’s domestic-assembly requirement could also shift demand toward U.S.-built models, giving sales teams another opportunity to highlight inventory advantages.
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