Car Loan Tax Deduction on US-Built Vehicles
For those American motorists who perhaps have not been paying that much attention to what Donald Trump has been up to since taking office once again, our article brings you up to speed on the new Car Loan Tax Deduction on US-Built Vehicles.
Made-in-America Car Loan Tax Deduction
"Make America great again" means a lot of change for most American industries, and US automakers are not immune to these changes.
You may ask yourself, "How does all this affect my next car purchase?"
This act is all about rewarding those buyers who purchase a U.S.-assembled vehicle.
Iconic brands like Cadillac can proudly state they assemble more models in the U.S. than any other luxury brand, which just happens to help buyers get into their next Cadillac.
Thanks to Mr. Trump's Big Beautiful Bill, which now imposes increased tariffs on imported goods and, yes, all imported vehicles, buying your next imported car will cost you more.
There is, however, a silver lining for those who choose to go the domestic-manufactured vehicle route in the form of the Made in America Car Loan Tax Deduction, which, in a nutshell, gives taxpayers a deduction on the annual interest paid on their car loan.
The One Big Beautiful Bill (OBBB)
The One Big Beautiful Bill Act of 2025, signed into law on July 4, 2025, as public law, has a significant effect on federal taxes, credits, and deductions.
The OBBB includes provisions for the subject of our article, the Car Loan Tax Deduction on US-built vehicles, which should excite car shoppers who choose to support American car makers.
Who's Eligible for the OBBB Car Loan Tax Deduction?
This new bill contains plenty of new tax provisions, including the new temporary income tax deduction for interest paid on vehicle financing loans for the purchase of qualified passenger vehicles.
The provision does limit the kind of vehicles and which loans qualify, as well as placing a cap on how much loan interest may be written off in a given tax year and by whom.
To help you digest this, here are some of the salient points of the provision:
- The tax deduction provision will only be in effect for vehicle purchases made in 2025, 2026, 2027, and 2028
- Personal use vehicles only, no fleet owners or commercial vehicles, and no lease benefit
- The tax break only applies to the purchase of new cars, motorcycles, sport utility vehicles, minivans, vans, and pickup trucks that weigh less than 14,000 pounds
- The vehicle you purchase will only qualify for the loan interest deduction if its "final assembly" was made in the United States
Your lender is obligated by law to provide vehicle purchasers and the IRS with a tax reporting form that includes details about the loan as well as the purchased vehicle that secures the loan, including the vehicle identification number.
Loans may not be from friends or family, and of course, no dodgy Mafia-financed loans are eligible.
Potential Savings Explained
As of 2025, your auto loan could net you a tax break that allows you an annual deduction of up to $10,000 in loan interest on the above-qualified vehicles for the tax years 2025 through 2028.
However, at this early stage, the full potential savings of the car loan tax deduction provision are yet to be seen, and as it stands, a buyer will need to be financing a luxury vehicle of around $112,000 to be eligible for the maximum $10,000 deduction in the first year of ownership.
Under this new law, the auto loan deduction shrinks for people with modified adjusted gross income above the $100,000 threshold, with the deduction amount reduced by $200 for each $1,000 in income above those levels.
Buyers need to be aware that any tax deduction is completely phased out for single filers earning above $150,000 and for married couples with incomes above $250,000.
Which Cadillac Vehicles are Eligible?
Buyers of new Cadillac vehicles may be eligible for a tax deduction for up to $10,000 in annual interest paid on most of Cadillac's latest models.
As already mentioned, prospective owners will be pleased to learn that Cadillac has more US-assembled models than any other luxury brand.
Here's a detailed list of those eligible models:
- Cadillac CT4 and CT5
- Cadillac Escalade
- Cadillac Escalade IQ
- Cadillac LYRIQ
- Cadillac VISTIQ
- Cadillac XT4 and XT5
- Cadillac XT6
Key Questions to Ask When Shopping
Shoppers with a new vehicle in mind are advised to start asking questions of the particular auto brand dealership that perhaps were not a consideration before the introduction of this new act.
Most worthwhile and trusted vehicle dealerships should have their sales staff up to date on such matters and ready to answer any questions you may have on the new act and just how it affects your purchase.
Questions to be asking include the obvious: Is this brand and model assembled in the USA, and is it eligible for a car loan tax deduction?
For interest's sake, these are some of the major automakers who have invested in production on US soil, making certain of their models eligible for a deduction:
- Honda
- Toyota
- Subaru
- Hyundai/Kia
- Mercedes-Benz
- BMW
- Mazda
How to Claim the Car Loan Interest Tax Deduction
The car loan interest tax deduction is only claimable for tax years 2025 to 2028 on the purchase of a new eligible US-assembled vehicle.
When filing tax returns with the Internal Revenue Service (IRS) and with the state or local tax collection agency, vehicle buyers will typically use Form 1040 or Form 1040-SR to file federal income taxes to claim their car loan interest tax deduction.
Taxpayers need to be aware of the following provisions:
- This deduction phases out for taxpayers with a modified adjusted gross income of over $100,000 or $200,000 for joint filers
- To qualify for the deduction, the interest must be paid on a new personal car purchase finance loan that originated after December 31, 2024
- If a qualifying vehicle loan is later refinanced, interest paid on the refinanced amount is generally eligible for the deduction
It is always advisable to consult with your tax, legal, or accounting professional for further detailed information and advice.
Why Claim the OBBB Car Loan Tax Deduction?
We answer this question with another question. Who doesn't want to reduce their taxes?
Buyers have been afforded the opportunity to be rewarded with reduced taxes being paid on their car loan interest when purchasing any new assembled-in-the-USA vehicle for their personal use.
Typically, new vehicle buyers who qualify for an auto loan rate of about 6.5% have the potential to deduct $3,000 in the first year of owning their new car and about $1,800 per year afterward for the remaining period of their car loan.
Car Loan Tax Deduction FAQs
New things always raise questions, and understanding this new act that potentially affects all new car buyers will take time to sink in.
To help you, our readers, we provide answers to some frequently asked questions regarding the car loan tax deduction.
What Types of Loans Are Eligible?
New car loans originating after December 31, 2024, for the purchase of a personal use vehicle that is assembled in the USA are eligible for the tax deduction.
Can I Refinance Later?
Yes, if your qualifying vehicle loan, as per all of the already shared criteria, is later refinanced, any interest paid on the refinanced amount will generally be eligible for the car loan tax deduction.
What Is the Max Annual Deduction?
New eligible auto loans for the 2025 to 2028 tax years can get you a tax break that allows for an annual deduction of up to $10,000 in loan interest.
Does Income Impact My Eligibility?
Yes, your personal income does affect eligibility for the new Car Loan Tax Deduction on U.S.-built vehicles.
This tax deduction will phase out for taxpayers with a modified adjusted gross income of over $100,000 or $200,000 for joint filers and ends for single filers earning above $150,000 and for married couples with incomes above $250,000.
Our best advice is for car buyers to consult their own tax, legal, or accounting professional if they have questions.
Does the Electric Vehicle Tax Credit Apply as Well?
Yes, for now, buyers of eligible electric vehicles before September 30, 2025, may be eligible for a tax credit of up to $7,500 for new EVs and up to $4,000 for any pre-owned EVs.
The existing tax credit for EVs will fall away after September 30, 2025. However, the new Made-in-America Car Loan Tax Deduction will still be applicable.
Speak to a Financing Expert Today
Speak to the professional team at Colonial Cadillac in New London, CT, for personalized support and financial guidance regarding the One Big Beautiful Bill car loan tax deduction.
Our team will ensure that you get the best possible deal on new or pre-owned vehicles along with the sound financial advice as expected from our exceptional dealership. Contact us today.
