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Shopping for a new car? President Donald Trump wants you to know about a tax break.
“You get a deduction if you buy a car—you can now deduct interest,” Trump told FOX Carolina in an interview ahead of his Oct. 29 rally in Rock Hill, South Carolina (1).
He’s right that the break is real. From 2025 through 2028, you may deduct interest paid on a loan used to buy a qualified vehicle, up to $10,000 a year, according to the IRS (2).
And you don’t have to itemize. The IRS says the deduction “is available for both itemizing and non-itemizing taxpayers” (2).
But I’ve been a CPA since 1981, and “deduct” is one of the most misunderstood words in the tax code. A deduction doesn’t put $10,000 back in your pocket. It lowers your taxable income, and what you actually save depends on your tax bracket.
Meanwhile, the interest is real money. New-car loans at commercial banks carried an average rate of 7.14% for 60 months in the second quarter of 2026, according to the Federal Reserve (3).
Here are 5 things to know before you sign a loan to get this break.
1. Don’t borrow just to get the write-off
Let’s run the numbers on a $35,000 loan at 7.14% for 60 months. The payment is about $695 a month. You’d pay about $2,304 in interest the first year and about $6,721 over five years.
If you’re in the 12% tax bracket, deducting that first year of interest saves about $276. In the 22% bracket, it saves about $507.
So the loan costs you far more than the deduction saves. The tax break makes borrowing cheaper. It doesn’t make borrowing free.
Whether to pay cash, finance or tap savings is exactly the kind of decision where a second set of eyes pays off.
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2. It has to be a new car assembled in the U.S.
“Final assembly of the qualified vehicle must occur in the U.S.,” according to IRS training material for volunteer tax preparers (4). A brand’s home country doesn’t settle it. Where the car was put together does.
The IRS says you can check the vehicle information label or the VIN for the plant of manufacture (2). Do that before you sign, not when you file.
You’ll need that number later, too. The IRS says you “must include the Vehicle Identification Number (VIN) of the qualified vehicle on the tax return” for every year you claim the deduction (2).
While you’re comparing sticker prices, compare what the car will cost to insure. That’s part of your monthly cost, too. Insurify lets you compare car insurance quotes side by side, so you can see that number before the car is in your driveway. Take a few minutes and compare quotes.
3. Used cars and leases get nothing
The IRS is blunt: “used vehicles do not qualify,” and “Lease payments do not qualify” (2).
If your plan is a gently used car or a lease to keep payments low, this tax break doesn’t apply to you.
The car also has to be for personal use, and the loan must be “secured by a lien on the vehicle,” the IRS says (2). In other words, it has to be a loan the car itself secures.
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4. Higher earners get less
The deduction “phases out for taxpayers with modified adjusted gross income over $100,000 ($200,000 for joint filers),” according to the IRS (2).
If your income is near those lines, keep an eye on it each year you claim the deduction. A big one-time boost to income, like a large IRA withdrawal or a home sale, can shrink the break that year.
5. A small tax bill means a small break
Here’s the part that doesn’t make it into a stump speech: A deduction is only worth something if you owe tax to begin with.
If your income is modest, you may already owe little or no federal income tax. On top of the standard deduction, people 65 and older “may claim an additional deduction of $6,000” for 2025 through 2028, the IRS says (2).
If your taxable income is already zero, deducting car loan interest saves you zero. In the 10% bracket, that $2,304 of first-year interest saves about $230.
My honest take
Trump’s right: The car loan interest deduction is real. If you’re financing a new, U.S.-assembled car anyway, claim every dollar of it.
But don’t let a tax break talk you into a car, or a loan, you don’t need. On a typical loan, the tax savings cover only a slice of the interest. You still pay the rest.
The cheapest car loan is still the one you never take out.
Sources: 1. FOX Carolina; 2. IRS; 3. Federal Reserve; 4. IRS
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