The United States is introducing a new tax credit for individuals purchasing American-made cars, as part of the One Big, Beautiful Bill Act (OBBA). Around 100 million Americans could potentially benefit from this tax break, which will allow buyers to deduct part of the interest paid on their auto loans in 2025. However, the eligibility criteria are specific, and many taxpayers may find themselves excluded from the new scheme.
With a focus on vehicles assembled in the U.S., the new provision targets those who purchase a car in 2025. Although the tax benefit sounds promising, the complexities surrounding the eligibility and application of the deduction mean that many people may not fully take advantage of this opportunity.
Eligibility Requirements for the New Tax Credit
To qualify for the new auto loan interest deduction, several conditions must be met. According to the U.S. Treasury Department, the car must be new, purchased for personal use, and must have been assembled in the United States. The loan itself must also be originated after December 31, 2024. Income limits apply: individuals with an annual income of $150,000 or less, and joint filers with incomes up to $250,000, may be eligible. However, it is estimated that only around 30% of cars sold in the U.S. meet the final assembly requirement, according to the National Highway Traffic Safety Administration.
Once eligible, buyers can deduct up to $10,000 of interest paid on their car loans from their taxable income. However, eligibility for the deduction is more intricate than it may first appear. Financial experts warn that the final IRS guidance, which is not expected until late February 2026, could lead to some confusion during the first tax season of this new credit. Drew Powers, founder of Powers Financial Group, explained that “this provision is far more complicated than advertised” and cautioned taxpayers to wait for clearer instructions before applying.
Financial Impact for Eligible Car Buyers
For those who do meet the eligibility criteria, the new tax credit could offer some relief. The exact tax savings depend on a person’s income bracket. For example, individuals in the 10% tax bracket could expect to save approximately $1,000, while those in the 22% bracket may see savings of up to $2,200. According to financial experts, the significant benefit of this new credit is that it is an “above-the-line” deduction, which means it reduces taxable income directly, unlike many traditional deductions that require itemising.
Despite the potential for savings, the overall financial impact is relatively modest, especially given the rising costs associated with purchasing a new vehicle. Alex Beene, a financial literacy instructor at the University of Tennessee, noted that while the tax deduction provides some relief, it “won’t dramatically lower the cost of buying a car.” Instead, it offers “modest tax relief for middle-income Americans” who are grappling with higher car loan interest rates. The deduction could make tax season slightly less expensive for families already planning to buy a new vehicle, but for many, it may not be the breakthrough they were hoping for.
While the introduction of this tax credit might be seen as a positive step for many Americans, experts like Kevin Thompson, CEO of 9i Capital Group, have raised concerns about the long-term financial sustainability of such incentives. Thompson questioned how the government would fund these tax breaks, suggesting that they could lead to increased borrowing and higher deficits. For now, however, the tax break offers a temporary financial cushion, though its future remains uncertain.
