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Senate Majority Leader John Thune (R-SD) speaks during a news conference following the weekly Senate Republican policy luncheon at the U.S. Capitol on June 17, 2025.<\/p>\n
Anna Moneymaker | Getty Images News | Getty Images<\/p>\n<\/div>\n<\/div>\n<\/div>\n
A multitrillion-dollar tax package issued Monday<\/a> by the Senate Finance Committee would offer a tax break for drivers on auto loan interest, but it doesn\u2019t seem to be available for used cars, tax experts said.<\/p>\n The Senate GOP tax plan<\/a> is part of a broader domestic policy bill that Republicans are trying to get to President Trump\u2019s desk by the Fourth of July, and aims to partially fund tax cuts by slashing spending on health programs like Medicaid and the Affordable Care Act. The House passed its version<\/a> \u2014 the \u201cOne Big Beautiful Bill Act\u201d \u2014 in May.<\/p>\n One of the legislation\u2019s many provisions would let taxpayers deduct up to $10,000 of auto loan interest from their taxable income in any given year. The average driver paid $1,332 of annual loan interest charges on new cars bought in 2024, according<\/a> to AAA.<\/p>\n The tax break \u2014 which President Trump proposed <\/a>when campaigning for president last year \u2014 would be available from 2025 through 2028.<\/p>\n<\/div>\n Qualifying vehicles must be U.S.-assembled cars, minivans, vans, sport utility vehicles, pickup trucks, or motorcycles for personal use.<\/p>\n The Senate legislation excludes all-terrain vehicles, trailers and campers, which the House bill had included.<\/p>\n The deduction would only be available for loans secured after after December 31, 2024, according to the Senate legislation. It must also be the first loan on the vehicle.<\/p>\n<\/div>\n Unlike a tax plan passed by the House in May, Senate Republicans appear to limit the tax deduction to new \u2014 and not used \u2014 passenger cars, tax experts said.<\/p>\n The Senate limits the tax break to vehicles for which \u201cthe original use \u2026 commences with the taxpayer,\u201d according to the legislative text<\/a>.<\/p>\n That phrasing is \u201cpretty clear\u201d in its meaning that only loans on new cars are eligible for the tax deduction, said Matt Gardner, senior fellow at the Institute on Taxation and Economic Policy.<\/p>\n \u201cThey don\u2019t say the word \u2018new cars\u2019 but I don\u2019t see another way of interpreting that language,\u201d Gardner said.<\/p>\n<\/div>\n That would limit the usefulness of the tax break for low- and middle-income taxpayers, who more often buy used cars, Gardner said.<\/p>\n A survey<\/a> of low- and middle-earning households published in 2023 by researchers at the University of California, Los Angeles, showed 61% had bought a used vehicle, while 39% bought a new one.<\/p>\n Average household income was $115,000 for new-vehicle buyers in 2023, compared to $96,000 for a used-car buyer, according<\/a> to Cox Automotive.<\/p>\n Cox estimates<\/a> more than 20 million households will buy a used car in 2025. In March, it forecast<\/a> about 16 million new-vehicle sales this year, though said tariffs levied by the Trump administration cloud the sales outlook.<\/p>\n<\/div>\n Higher earners tend to get more value from tax deductions than low and middle earners<\/a>, Gardner said. Deductions reduce the amount of taxable income that households pay, and high earners generally pay a higher federal tax rate than lower-earning households.<\/p>\n \u201cThe more you earn, the higher the tax rate you pay, meaning the more benefit you get from this thing,\u201d Gardner said.<\/p>\n More from Personal Finance:<\/strong> However, the auto loan interest deduction starts to lose value when a taxpayer\u2019s annual income exceeds $100,000. The threshold is $200,000 in the case of a joint tax return filed by married couples.<\/p>\n The deduction\u2019s value falls by $200 for each $1,000 of income over those thresholds.<\/p>\n Meanwhile, the Trump administration put 25% tariffs on imported cars and car parts. Those tariffs are expected to push up car prices, and in turn erode the deduction\u2019s value for households, Gardner said.<\/p>\n \u201cTariffs will completely eat up the value of this deduction for a lot of people,\u201d he said.<\/p>\n William McBride, chief economist at the Tax Foundation, said he thinks the \u201cbiggest change\u201d from the House version of the legislation is \u201cto prevent loans against used cars.\u201d<\/p>\n<\/div>\n<\/div>\n\nWhich vehicles may qualify for the tax break<\/h2>\n
Which car owners may benefit<\/h2>\n
How child tax credit would change under GOP spending bills<\/a>
How Senate GOP \u2018no tax on tips\u2019 proposal works<\/a>
Who would qualify for $1,000 baby bonus in \u2018Trump accounts\u2019<\/a><\/p>\n
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