‘Big, beautiful, bill’ offers car loan interest tax deduction

The Republicans’ signature tax cut and spending package – dubbed the “big, beautiful bill” – that was signed into law last week touts tax deductions on tips and overtime pay, and also includes a tax deduction of up to $10,000 for interest paid on the car loans of qualified vehicles.

In order to qualify for the temporary income tax deduction, both the vehicles and the loans must satisfy a number of conditions. 

Qualified vehicles include cars, vans, minivans, SUVs, pickup trucks and motorcycles that weigh less than 14,000 pounds. They also must have at least two wheels, and must be purchased new, not used, between the beginning of 2025 and the end of 2028, according to the new law.

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In order to qualify for the temporary income tax deduction, both the vehicles and the loans must satisfy a number of conditions. (iStock / iStock)

The vehicles must only be for personal use, not business or commercial purposes, and the “final assembly” of the vehicle must take place in the U.S. Final assembly refers to a process where the major components of a vehicle – engine, transmission, body and chassis – are fully integrated, and the vehicle is completed at a U.S.-based manufacturing facility, automotive expert Lauren Fix told FOX Business. 

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While the bill does not provide an exhaustive definition of what “final assembly” means, consumers can also likely verify their vehicle’s eligibility through dealer-provided documentation or certifications, as dealers are expected to advertise qualifying vehicles, she said. 

“The IRS is expected to create a resource listing qualifying vehicles and models, similar to existing resources for electric vehicle tax credits, to clarify which vehicles meet the final assembly requirement,” Fix added.

President Donald Trump signed the One Big Beautiful Bill Act into law last week. (Patrick van Katwijk/Getty Images / Getty Images)

Additionally, the loan on the vehicle must be a standard and secured auto loan. Refinanced loans may also qualify under certain conditions. The car’s vehicle identification number (VIN) must also be reported on tax returns in order to qualify. Deductions do not need to be itemized, according to the new law.

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Up to $10,000 in car loan interest can be deducted, but there is an income cap. For those filing taxes as a single person who makes more than $100,000 a year, or for those filing jointly and making more than $200,000, the deduction is reduced by $200 for every $1,000 over that limit.

Up to $10,000 in car loan interest can be deducted, but there is an income cap. (iStock  / iStock)

Fix said the requirement for final assembly in the U.S. could benefit American manufacturing and jobs, particularly companies like Ford, General Motors, Honda, Toyota, BMW and Tesla, which have significant U.S. production facilities. However, lower-income filers might not benefit from the deduction, Fix said.

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“The exclusion of used vehicles and imported models could disadvantage lower-income buyers who often opt for used or affordable imported cars – 80% of cars under $30,000 are imported,” she said.