Some car buyers will get a tax break this year from the “big, beautiful bill.” Here’s how it works.

Car buyers in the United States may soon find themselves eligible for a new tax deduction thanks to a provision in the recently signed One Big Beautiful Bill Act. President Trump, who first proposed the idea of a tax break for auto purchasers during his campaign trail, has finally delivered on his promise to make car ownership more affordable for working American families.

The new tax break, set to take effect in 2025, allows car buyers to deduct up to $10,000 in qualified passenger vehicle loan interest during a taxable year. This deduction is similar to the mortgage interest deduction available to homeowners, but with a key difference – car buyers can claim the deduction even if they take the standard deduction, unlike the mortgage interest deduction which is only available to itemizing taxpayers.

To qualify for the deduction, the vehicle must be a new car, motorcycle, SUV, minivan, van, or pickup truck weighing less than 14,000 pounds. Additionally, the vehicle must be assembled in the U.S. and purchased for personal use, excluding fleet and commercial purposes. Used cars and leased vehicles are not eligible for the deduction.

Income limitations apply to the auto loan deduction, with single taxpayers with a modified adjusted gross income (MAGI) of $100,000 or less and married couples with a MAGI of $200,000 or less eligible for the full deduction. The deduction decreases for taxpayers with incomes above these thresholds and is completely phased out for single filers earning above $150,000 and married couples with incomes above $250,000.

According to estimates, approximately 3.5 million new vehicle loans could be eligible for the tax break this year, benefiting many car buyers across the country. The deduction, which will expire in 2028, could save the average car buyer hundreds of dollars per year on their taxes, depending on the size of their auto loan and interest rate.

Overall, the new auto loan deduction is set to provide much-needed relief for car buyers, helping to make vehicle ownership more affordable for millions of Americans. With the tax break taking effect in 2025, eligible taxpayers can look forward to saving money on their taxes when they purchase a new vehicle.