New tax deduction could benefit car buyers, boost auto sales

A new tax deduction for the 2025 tax filing season allows people who purchase new vehicles that are assembled in the United States to deduct the interest on auto loans to reduce their tax burdens. 

The idea is to ease costs for consumers while boosting U.S. manufacturing. But experts said a number of limitations, in the form of income caps and the types of vehicles that qualify, will lessen the impact both for consumers and the auto industry. 

Nevertheless, some people will benefit. Combined with other new tax breaks, the auto industry could be in for a boost in sales this spring.

The deduction applies whether a taxpayer is itemizing or taking the standard deduction in their returns, and experts estimate that those who qualify could increase their refunds between $200 to more than $700. 

To qualify, a new vehicle must be purchased between 2025 and 2028. It must be assembled in the United States, which applies to about half of the new vehicles sold in the country. The deduction phases out for single taxpayers making more than $100,000 and for joint filers making more than $200,000. 

“I don’t think that the industry expects it to be a market-mover in and of itself,” said Jeremy Robb, chief economist at the data and technology firm Cox Automotive, which estimates about 30% of new vehicle purchases in the U.S. are likely to qualify for at least some of the new deduction. 

Ford F-Series and Chevrolet Silverado pickups are among the U.S.-made models that could benefit the most, according to the Bipartisan Policy Center. 

Robb said there is evidence that dealerships are stocking up on more vehicles in anticipation of a busy spring selling season that could be boosted by a number of tax cuts that are likely to lead to higher refunds this year. 

Brett Hedrick, owner of Hedrick’s Chevrolet in Clovis, California, is expecting a busy selling season, as well.

“We try to always be optimistic,” Hedrick said. “When they can write off interest on their vehicle loans, that’s going to spur some people. So, I'm very optimistic about it.”

Miami-based CPA Johan Garcia said he has already advised three clients about the new deduction, and one of them decided to purchase a new vehicle instead of leasing because it made more financial sense.  

“If you're taking this deduction and it's worth purchasing because the car doesn't lose much value on a year to year basis, then it is worth doing that analysis,” Garcia said. 

But for most consumers, the savings from the new deduction are modest relative to the upfront costs. The average selling price for a new vehicle is now approximately $49,000. 

Andrew Lautz, director of tax policy at the Bipartisan Policy Center, said it’s too early to tell how much of an impact the deduction will have.

“Tariff policies are factoring into people's decision on when and whether to buy a car, inflation, tighter job market,” Lautz said. “These are all trends that are much bigger than just one tax deduction.”

Despite those headwinds, consumers have still been willing to spend. New auto sales last year  increased nearly 2% compared to 2024, according to Cox Automotive, but sales are likely to decline this year, as rising prices and higher interest rates take their toll. 

The same tax and spending bill that introduced the new auto loan interest deduction also killed the electric vehicle tax credits which ended in September. The change compounded problems for Tesla, a U.S. manufacturer, which reported a 9% sales decline in 2025.