As President Donald Trump and his Republican allies scramble to address affordability concerns, they have touted the giant tax-cut bill that was signed into law this summer.
Trump and his advisers have promised Americans that they will see bigger tax refunds next year, in part because of new tax breaks that were included in the bill. One of those — a deduction that the law calls “no tax on car loan interest” — is likely to be popular. But it may yield only marginal savings for consumers. And tax and auto experts are uncertain about whether the policy will be a boon to the auto industry or will deliver on affordability.
The deduction is part of a broader policy push by the Trump administration to walk back subsidies on electric vehicles and realign the auto industry to ensure that more cars are built in the United States. Trump also canceled subsidies for electric vehicles, a signature policy under President Joe Biden.
Sen. Bernie Moreno, R-Ohio, a chief architect of the tax deduction, called the policy an “immediate relief” from high auto prices.
“People are financing cars today, they financed cars yesterday and they’ll finance cars tomorrow, and the ability to write off that interest is a big deal,” he said.
But the deduction comes at a time when the auto industry is struggling to adapt to Trump’s tariffs, which analysts expect to eventually raise car prices.
“To the extent that these tariffs actually go into effect and they increase prices for cars, that will offset any benefit you get from this deduction,” said Adam N. Michel, the tax policy director at the Cato Institute, a libertarian-leaning think tank.
The tax break is expected to save taxpayers a few hundred dollars a year, according to industry analyses. Individuals whose adjusted annual income is no more than $100,000 — it’s $200,000 for joint filers — can deduct the interest on an auto loan for a new car with final assembly in the United States. The benefit, which can be taken in addition to the standard tax deduction, will apply only between 2025 and 2028.
“While all savings are a benefit to consumers, this amount is not likely a big motivator to new-car buyers, nor will it drive higher levels of US vehicle manufacturing,” Jonathan Smoke, a senior economist at Cox Automotive, said.
