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A Rolls-Royce Spectre all electric luxury coupe is displayed at Rolls-Royce Motor Cars dealership showroom in London.<\/p>\n
John Keeble | Getty Images News | Getty Images<\/p>\n<\/div>\n<\/div>\n<\/div>\n
Republicans are trying to make good on President Donald Trump\u2019s campaign promise<\/a> to give Americans a tax break on their car loan interest<\/a>. However, as structured, most households wouldn\u2019t get a substantial financial benefit, economists said.<\/p>\n House and Senate Republicans proposed giving drivers a tax deduction of up to $10,000 on annual interest for new auto loans in their so-called \u201cOne Big Beautiful Bill Act.\u201d The tax break would be temporary, ending after 2028.<\/p>\n But few drivers pay that much annual interest, said Jonathan Smoke, chief economist at Cox Automotive, an auto market research firm.<\/p>\n It\u2019s \u201cpretty rare,\u201d he said.<\/p>\n Auto loans don\u2019t have annual interest charges of $10,000 or more outside of large loans on \u201cexotic\u201d vehicles, Smoke said.<\/p>\n<\/div>\n How large would the loan have to be?<\/p>\n It would take a loan of roughly $112,000 to use up the full $10,000 deduction in the first year of car ownership, Smoke said.<\/p>\n Only about 1% of new auto loans are this big, according to Cox Automotive data.<\/p>\n Cars most likely to see loans of that magnitude include a \u201claundry list of exotic names\u201d like Rolls-Royce, Ferrari, Bentley, Aston Martin, Lamborghini, McLaren, Porsche, Land Rover, Cadillac, Maserati, Lotus and Mercedes-Benz, Smoke said.<\/p>\n Smoke\u2019s analysis assumes drivers use the most popular loan length, 72 months at the current new loan average of around 9.5%. It includes a 10% down payment and various fees like taxes and registration.<\/p>\n The example implies a vehicle purchase price of about $130,000, he said.<\/p>\n Vehicles with an average purchase price near this level include a Porsche Panamera or Cadillac Escalade, he said. Monthly car payments under those loan terms would likely be more than $2,000, Smoke said.<\/p>\n More from Personal Finance:<\/strong> House Republicans included the tax break on auto loan interest in a massive domestic policy bill, the \u201cOne Big Beautiful Bill Act,\u201d which lawmakers narrowly passed along party lines in May. The Senate may vote on a similar measure as soon as this week.<\/p>\n In practice, few if any households would likely claim the full benefit due to an income limitation, experts said.<\/p>\n Both versions of the legislation reduce the value of the car loan interest tax deduction once an individual\u2019s annual income exceeds $100,000, or $200,000 for married couples filing a joint tax return. Households below those thresholds may qualify for the full tax benefit, but are unlikely to buy an expensive enough car to do so, economists said.<\/p>\n Those drivers who might qualify to take on a six-figure car loan are unlikely to maximize the tax break, either. Taxpayers don\u2019t get a financial benefit once income exceeds $150,000 (or $250,000 for married couples), according<\/a> to the Institute on Taxation and Economic Policy, a left-leaning think tank.<\/p>\n Qualifying cars must also receive final assembly in the U.S., according to current legislative text, potentially further limiting the potential roster of vehicles.<\/p>\n<\/div>\n People walk by a Ferrari dealership in New York City.<\/p>\n Spencer Platt | Getty Images News | Getty Images<\/p>\n<\/div>\n<\/div>\n<\/div>\n The average car loan so far in 2025 is about $43,000, according to Cox Automotive data.<\/p>\n Under Republicans\u2019 tax plan, the average buyer would get a tax deduction of about $3,000 in the first year of a six-year loan (and a roughly $2,000 average annual deduction over the loan\u2019s life), Smoke said.<\/p>\n However, based on the way tax deductions work, this wouldn\u2019t mean car buyers get $3,000 in their pocket the first year.<\/p>\n That $3,000 would be deducted from the buyer\u2019s taxable income.<\/p>\n \u201cThe math basically says you\u2019re talking about [financial] benefit of $500 or less in year one,\u201d and a declining value in subsequent years, Smoke said. That\u2019s less than the average monthly payment on a new loan, he said.<\/p>\n<\/div>\n<\/div>\n\nA \u2018laundry list of exotic names\u2019<\/h2>\n
The salary Americans say they need to live comfortably<\/a>
Why electricity prices are surging for U.S. households<\/a>
House, Senate tax bills both end many clean energy credits<\/a><\/p>\nThe average car loan and interest charges<\/h2>\n
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