New tax break for auto loans could save some buyers thousands of dollars. But will it boost sales?

By DAVID A LIEB Millions of people receive a federal tax deduction for the interest they pay on home loans Under President Donald Trump s new tax-cut law numerous people for the first time also could claim a tax deduction for interest on their truck loans Related Articles The GOP Megabill What taxpayers should know One Tech Tip Click-to-cancel is over but there are other avenues to unsubscribe Under fire by Trump over costs Chair Powell seeks watchdog review of Fed building overhaul Elmo s hacked X account posted racist messages Sesame Workshop is trying to regain control Wall Street hangs near its record amid doubts about Trump s tariffs The new tax break will be available even to people who don t itemize deductions But there are particular caveats that could limit its reach The vehicles must be new not used They must be assembled in the U S And the loans must be issued no sooner than this year to list just a inadequate qualifications Here are particular things to know about the new auto loan interest tax deduction Candidate Trump promised an auto loan interest tax break Trump pledged while campaigning last year to make interest on car loans tax-deductible He declared it would make car ownership more affordable and stimulate massive domestic auto production The idea made it into the big tax-cut bill passed by Congress which Trump signed into law July The law allows taxpayers to deduct up to of interest payments annually on loans for new American-made vehicles from through It applies to cars motorcycles sport utility vehicles minivans vans and pickup trucks weighing less than pounds a threshold referred to as light vehicles But it only applies to vehicles purchased for personal use not for fleets or commercial purposes The tax break can be claimed starting on income tax returns But the deduction phases out for individuals with incomes between and or joint taxpayers with incomes between and Those earning more cannot claim the tax break Millions of buyers could benefit but millions of others will not U S automobile dealers sold million new light vehicles last year a little over half of which were assembled in the U S according to Cox Automotive It says around of retail sales are financed with loans After excluding fleet and commercial vehicles and customers above the income cutoff an estimated million new truck loans could be eligible for the tax break this year if purchasing patterns stay the same announced Jonathan Smoke chief economist at Cox Automotive It s the assembly plant not the automaker s headquarters that matters The tax break applies to vehicles assembled in the U S no matter where the company making them is headquartered All Tesla vehicles sold in the U S are assembled in this country But so are all Acura brands the luxury model of Japanese automaker Honda FILE A long line of unsold Bronco utility vehicles sit on display at Ford dealership in Denver Nov AP Photo David Zalubowski File Last year of Ford vehicles sold in the U S were assembled in this country according to Cox Automotive But customers wanting the tax break will need to pay attention to specific models While the Ford Mustang is assembled in Michigan the Mustang Mach-E is built in Mexico General Motors assembles all of its Cadillacs in the U S But just of its Chevrolets sold last year were assembled in the U S and just of Buicks according to Cox Automotive That s a lower U S-assembled rate than Honda Toyota and Nissan which all are headquartered in Japan Taxpayers could save hundreds of dollars a year The average new motorcycle loan is about financed over six years Interest rates vary by customer so the savings will too In general the tax deduction will decline after the initial year because interest payments on loans are frontloaded while principal payments grow on the back end At a interest rate an average new automobile buyer could save about on taxes over four years Smoke disclosed The tax savings would be less on a loan at which is the rate figured into calculations by the American Financial Services Association a consumer credit industry commerce group A few people also could see a reduction in state income taxes Whereas the tax deduction for home loan interest can be claimed only by people itemizing on their tax returns Congress wrote the deduction for auto loan interest so that it can apply to all taxpayers including those claiming the standard deduction On a tax form the auto loan deduction will come before the calculation of a taxpayer s adjusted gross income That s an vital distinction because a great number of states use a taxpayer s federal adjusted gross income as the starting point for figuring their state income taxes If that income figure is lower it could reduce the state taxes owed The verdict is out on whether the tax break will boost sales At Bowen Scarff Ford in Kent Washington customers started asking about the auto loan tax deduction before Congress had even taken a final vote on the tax-cut bill revealed General Manager Paul Ray So he decided to promote it on the dealer s website A website ribbon exclaims CAR LOAN TAX DEDUCTION NOW AVAILABLE while also promoting an electric conveyance tax credit that is ending soon as a consequence of Trump s tax-cut law I think it s going to help incentivize van purchases through this year Ray disclosed An American Flag at the Ford Motor Company Kentucky Truck Plant is seen during a media tour for the launch of the Ford Expedition in Louisville Ky April AP Photo Carolyn Kaster File Celia Winslow president and CEO of the American Financial Services Association concurred For several people deciding should I buy it should I not this could be something that tips the scale Others remain skeptical According to Smoke s math the average annual tax savings is smaller than a single month s loan payment for a new motorcycle I don t think it moves the needle on somebody on the fence of buying a new truck or not Smoke reported But I think it could influence their decision to finance that bus instead of paying cash or instead of leasing a wagon