Taxpayers who bought a new car in 2025 may qualify for a new tax break in the upcoming filing season — so long as that vehicle was made in the U.S., the Internal Revenue Service said.
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Taxpayers should check the vehicle information label, or VIN, to figure out whether a car they purchased this year qualifies for President Donald Trump’s new tax deduction for car loan interest, the IRS said in guidance about the tax break published on Wednesday.
The tax deduction applies to new cars assembled in the U.S. purchased from 2025 through the end of 2028. The IRS advised in a proposed rule that buyers can determine if their car qualifies by checking the final assembly location included on the vehicle information label that’s attached to cars on dealership lots. They can also run their car’s VIN through the National Highway Traffic Safety Administration’s database to determine at which manufacturing plant the vehicle was built, the proposal said.
That means that some buyers may not qualify for the new tax break, even if they purchased fresh-off-the-lot vehicles this year.
Of the 25 most popular new car models sold domestically in 2024, 14 underwent final assembly solely in the U.S. Those include the Ford F-series trucks, the most popular new model sold in 2024, as well as the Chevy Silverado, Tesla Model Y, Ram pickup truck, GMC Sierra and the Toyota Camry, according to the analysis from the Bipartisan Policy Center.
Had the deduction been in effect for new cars purchased in 2024, of the 25 most popular models, about 4 million of the 7 million units sold that year would have qualified for the deduction, according to the think tank’s analysis performed before the IRS proposed rules were released.
Four of the 25 most popular car models sold in 2024 were slated for final assembly in multiple countries, including the U.S. and at least one other country, according to analysis by the Bipartisan Policy Center.
Trump first pitched the tax break during a campaign swing through Detroit, Michigan, a hub of U.S. auto-manufacturing. As the White House pivots to address voter discontent over the persistently high cost of living, Trump’s campaign tax promises, including the car loan interest deduction, are taking center stage.
“For the administration it’s clearly aimed at supporting and boosting domestic auto production and domestic auto consumption,” said Andrew Lautz, director of tax policy at the Bipartisan Policy Center. Whether it turns out to be a “boom or bust” for the auto industry is less clear given other macroeconomic headwinds, he said.
Though the tax cut is estimated to cost $31 billion over 10 years, tax savings for individual taxpayers are likely to be modest, amounting to probably a “couple hundred dollars off a $50,000 vehicle purchase” in the first year, Lautz said. The deduction is capped at $10,000 annually.
Middle-income households are among those likely to benefit from the new tax break, which starts to phase out for single taxpayers making at least $100,000 and married taxpayers making at least $200,000. Low-income taxpayers, who tend to buy used, rather than new cars, are less likely to benefit from the tax break, Lautz said.
The proposed rules would take a broad approach to determining whether a taxpayer has purchased a car for “personal use,” another requirement included in the law.
To qualify for the tax break, buyers, when they secure the loan, must expect the purchaser or a family member to use the car for personal use at least half the time. They would still qualify for the tax break, even if their use of the car shifted to commercial use over time, according to the proposal.
The proposed rules would require any lender who collects at least $600 in interest in a year from an individual related to a car loan to file an information return with the IRS and provide information to the borrower. For 2025, the lender can satisfy requirements by providing the borrower with the total interest paid for the year, under earlier IRS transition guidance.
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