House Republicans have passed the first steps to make good on President Donald Trump’s number one campaign promise. Their goal is to give Americans a tax break on the interest from car loans. This initiative, though attractive to prospective EV or clean vehicle buyers, can leave them needing to make a large up-front investment.
The average new car loan as of 2025 is over $43,000 according to Cox Automotive data. Luxury and exotic models are the types of vehicles that primarily warrant loans of this size. Topping the list are luxury brands such as Rolls-Royce, Ferrari, and Bentley. Not surprisingly, automakers like Aston Martin, Lamborghini, McLaren, Porsche, Land Rover, Cadillac, Maserati, Lotus, and Mercedes-Benz are high on the list.
Buying these luxury vehicles involves considerable monetary costs. Annual interest charges on auto loans for luxury cars typically are below $10,000. If the loan were for an exotic vehicle, the interest could be even higher. Buyers can benefit from a $10,000 federal income tax deduction during the first year of ownership. To achieve this, they should plan on buying a vehicle worth about $130k. That amounts to a loan of about $112,000 to fully utilize the deduction.
Under the Republican lawmakers’ tax plan as it stands right now, the average person buying a vehicle should expect no more than a $3,000 deduction. In reality, this benefit only takes effect in the first year of a six-year loan. Over the life of the loan, this deduction would be about $2,000 per year on average.
It’s important to understand that this tax break is temporary, concluding after 2028. In order to be eligible for the tax deduction, vehicles must have undergone their last assembly in the United States. This is appropriately specified in the proposed bill.
Under that plan, the federal government would phase out the benefits of the car loan interest tax deduction as someone’s annual earnings go over $100,000 a year. For married couples filing jointly, this floor is higher, at $200,000. In addition, taxpayers will receive no financial benefit after their income exceeds $150,000 ($250,000 for married couples).
Based on these parameters, monthly payments on a car under such a loan would be well over $2,000. Moreover, based on Cox Automotive data, only 1% of new auto loans are worth this much.
Smoke remarks on the real-world benefits of this one new tax policy. He breaks down how the math clearly indicates an upfront financial benefit of $500 or greater in year one.
The effects of these new fiscal privileges beg the question about who will actually benefit from this tax cut wonder. For most everyday Americans, the idea of being able to buy these costly cars certainly seems like a pipe dream.