Trump-Backed Car Loan Tax Break Would Mostly Benefit Luxury Buyers, Experts Say

A proposed tax break championed by former President Donald Trump and recently passed by House Republicans could allow Americans to deduct up to $10,000 in car loan interest—but economists say few drivers would benefit substantially unless they purchase ultra-expensive vehicles.

Part of the “One Big Beautiful Bill Act,” the tax deduction on new auto loan interest is structured to cap out at $10,000 annually and would expire after 2028. According to Jonathan Smoke, chief economist at Cox Automotive, achieving the full deduction would require an auto loan of approximately $112,000—suggesting a vehicle purchase price of around $130,000.

Luxury car | Source: Pexels

“That’s pretty rare,” said Smoke. Only about 1% of new car loans reach that level, typically associated with “exotic” brands like Rolls-Royce, Ferrari, and Bentley. Even vehicles like the Porsche Panamera or Cadillac Escalade—averaging near the $130,000 mark—would come with monthly payments exceeding $2,000 under current loan conditions.

The proposed benefit is also limited by income thresholds. Taxpayers earning more than $150,000 ($250,000 for joint filers) would see the deduction phased out entirely, while households below $100,000 in annual income may qualify but are unlikely to afford high-end vehicles.

Luxury SUV | Source: Pexels

Smoke estimates that the average car loan in 2025 is about $43,000, with buyers potentially qualifying for a $3,000 deduction in the first year. However, that equates to a tax savings of “$500 or less in year one,” he noted—less than a single monthly car payment.

A Senate vote on the measure is expected soon.