President Donald Trump and House Speaker Mike Johnson are working on creating a new tax deduction for interest paid on auto loans for cars built in the United States. It’s unclear at this time whether this would be an itemized deduction or if it would also be available to taxpayers who take the standard deduction.
“So if the car is made in America, you get a loan, you can deduct the interest,” Trump told the press on Wednesday when he announced the 25 percent tariff on cars imported to the U.S. scheduled to take effect next week. “That’s a big saving.”
Automotive News spoke with dealers, and they seem to agree it would be a good thing for new car affordability if interest on loans for American-made cars were tax deductible. “I think that that would be amazing. It could really help consumers,” Jason Tamaroff of Tamaroff Group in Michigan said. “I think it’s great,” Michael Cummings, vice president of California-based Cummings Automotive, said of the proposal to allow auto loan interest deductions. “We used to have it.” Auto loan interest used to be tax deductible before the Tax Reform Act of 1986.
However, some are skeptical that such a move can really happen. Nick Anderson of Chuck Anderson Ford in Missouri called it a “pipe dream” and a way to motivate the Federal Reserve. “I think it’s Trump’s way of trying to regulate interest rates and trying to get the Fed to lower rates,” Anderson said. “As far as customers being able to write off [part] of their interest, I don’t foresee that happening.”
Analysts from J.P. Morgan estimate that extra tariff costs will raise the average auto loan monthly payment by about $60 to $90, but making the interest tax deductible would mitigate that by a factor of about $20/month.
As for the federal tax revenue that would be lost by making these interest payments tax deductible, Trump believes “it’s going to pay for itself” in new revenue from the tariffs while also increasing American auto manufacturing. “You’re going to have so many cars built,” the president added.
